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2010

The Future of Supply Chains

December 2010 Previous month Next month

About Jack Anderson

 

Jack Anderson has been working in innovation for the last 10 years. His background is in information technology. He has a history degree and has had interest in leadership and what motivates people and has always worked in information technology, about 30 years. He tends to lean towards to people side of the business and helping it run more like a business.

 

 

He looks at systems management and how things work and how they can get better. Through this work he started to focus on innovative processes and practices to help speed things up, make things more efficient or be more on top of what customers need. Listening to customer requirements, etc. 10 years ago he got involved with nurturing innovative thinking within groups and asking the question of whether you can draw out the creativity of your workforce, applying and making it work better.

 

Jack has been focusing on establishing cultures of innovation within an organization and putting practices and procedures in place that nurture innovation. He has been working with groups on things such as breakthrough thinking, busting down barriers to creative thinking, etc. Jack has done a lot of work to establish a framework around innovative practices and behaviors based around ‘design thinking’ learned from IDEO’s practices around innovation. Jack puts in the tools and processes that enable the framework.

 

What Jack is most concerned with, not only within his company but also the world at large, is how to help people with great ideas to articulate those ideas so that they can be understood. Using Jeffery Moore’s Crossing the Chasm description, something is worthless unless you can go from an idea or concept and bridge the gap to it actually having business application and being valuable. It is about helping people to be understood to the point where they can actually do something with it.

 

This is particularly helpful to technical people who articulate their ideas so that business people can understand them.

 

Philosophy or framework used to approach innovation

 

On the philosophy side, Jack follows the premise that innovation is all around us. There are great ideas, adaptable behaviors and breakthrough thoughts all around us. Being innovative is part of being a human being. The premise is that in order to make it happen in an environment where people are working together you need practices and procedures where people are enabled to think, share and collaborate so that they can understand each other. This helps move things from concepts into actual reality.

 

Whenever people are interested in a framework, Jack points them to the IDEO literature. IDEO is a creative company that was started in Palo Alto and spawned from the Stanford engineering design school environment. They helped to really frame-out and provide a simple way to describe how you enable a practice of innovation and the process of innovation you want to take place.

When Jack worked at Intel, the first place he really worked in this environment of innovation, he and his team took IDEO’s practices and looked at them and adapted them to Intel’s culture. Jack now works at Chevron and they are using the same general framework.

They have 7 steps in their innovation cycle:

 

  1. Understand the problem at hand: Get a group to understand what they are focusing on.
  2. Observe. Go out and observe either the problem or the opportunity, watch and learn from people, being like an anthropologist.
  3. Ideate. Creative thinking is the first thing most people think about with innovation. Most companies and groups do brainstorming. When you look out in the world there are many great techniques to expand thinking and to think out of the box. This is a refined step involves taking the raw     ideas and components and refine them into themes.
  4. Refine.  Take Idea fragments and group them. Identify themes that surface among the ideas.
  5. Prototyping, probably the most fun step. Take at the concepts and do something to prototype your examples and test things out.
  6. Approve.  Select the prototypes that can cross the chasm to productive reality.
  7. Connect into the production process.

 

Jack’s job is to have tools and practices within this framework so that if someone comes to him and they are stuck, they can go through the framework relatively quickly. For example, how do you train people to do observational techniques, finding and observing things in real and objective ways?

 

Are there any thought leaders that you have learned from?

 

Jack has found that many are likely looking for a person out in the world that everyone would know. People initially tend to look for an Einstein who is a brilliant innovator. However, there is also the Edison who tries and tries, plots, experiments and learns. Jack likes to point people in the Edison school because it is rare to come across an Einstein.

 

Jack likes to observe people in his environment who might not be known or published. He works with a few people who are incredible at finding new ideas and putting them together. One is named Martin Curley who helped co-found the Innovation Value Institute. Martin is a co-director of the institute. He is a technology officer at Intel Corporation and has written several books on the business value of innovation. To watch him in action and how he makes connections and find possibilities in things, and importantly making connections with the right people who can get something done.  There are other people Jack works with who are also like that who are unpublished and not well known.

 

Are there groups on LinkedIn?

 

There are several groups on LinkedIn, such as East/West Innovation. This group is interesting because they are exploring the contrasts between Western and Eastern approaches to innovation. There have been some very interesting discussions around that.

 

What types of innovation programs is Chevron implementing?

 

When Jack goes to conferences or reads papers about what companies are doing, Chevron is doing some things that fall right in line with what you see happening out in the industry. They have a research and development group that is investing a lot of funds, resources and people, into looking at the future of technologies and more. At Chevron, in the technology management area, they have a focus area where they bridge between long range research and the testing and application of new ideas that come through the pipeline which are likely to have an effect on business. The focus area looks at some amazing things such as virtual reality and how it might affect the production work at an energy company like Chevron. They are looking at how to manage and monitor high risk areas through virtual environment.

 

They also have a program on innovation practices. A lot of the work Jack does is in this area where he and his team are a service to the whole company. People come to them for help with doing some creative thinking, speeding up the requirements gathering process etc. Jack is excited about this because it has given him exposure to many different areas of his company. For example, the Health and Benefits department came to him to understand he XYZ network, the emerging young people in the workforce, and how they can be more involved in their own personal health care. One of Chevron’s pipeline environments had them do a creative practice exercise, doing requirements gathering on a technology being used out in the field. Chevron Shipping has come to them to talk about breakthrough thinking in the IT world about how IT can enable better shipping.

 

A wide variety of things such as these have come to Jack’s department. They do traditional research and development, all the way to a laboratory environment to enable creative innovations and breakthrough thinking.

 

Are business processes a source of innovation?

 

Jack believes it is an interesting question with a lot behind it. Most people understand very clearly when you talk about product innovation and why a company would invest in product innovation. Yet, business process is an amazing and rich area for innovation. Companies can gain a lot of value by making their business processes more efficient and effective. You can apply innovation practices to this.

 

One of the things Jack had an opportunity to work on while at Intel involved a group that needed to reduce their cost by a significant factor within a short period of time, otherwise a dire consequence would result. The manager chose to approach the problem with innovation. The team had the employees looking for bureaucracy-busting types of ideas. They were looking at roadblocks in business processes and how to make it more efficient. Jack’s team was able to meet their cost reduction goals just by process efficiency, it was amazing.

 

Why do we need to innovate?

 

Jack’s initial reaction to this question is that being innovative is being human. Being adaptive, agile, coming up with new ideas, approaching challenges in creative ways, is part of being a human being. For businesses to survive internally they need a rich environment for innovation and creativity. Otherwise you will have a miserable place to work.

 

The more obvious answer is that the world changes and companies need to adapt and change. Look at how products need to evolve and how customer service need to evolve as time goes on. The adaptiveness and creativity which innovation brings is the basic component of survival.

Many companies are feeling that innovation will be the factor that will enable them to survive the horrible economic condition we are currently experiencing. It is an understood business value right now that companies need to be adaptive and responsive.

Interview with Ken Kowal, founder of eroutingguide.com and Fillship.com

 

 

1- When people talk about using social media for business what are they talking about?

 

Ken’s interest in social media started about 1 year ago. It came about from his desired to grow his two businesses. When people are talking about social media they are talking about the platforms out there that we hear about every day such as Facebook, Twitter and Youtube. These platforms are ways for people and companies to connect and communicate over the Internet. You hear about people using Facebook or Tweeting a message on Twitter. That is social media in action. We hear about it on the news and people talk about it quite a bit. It is a powerful way to communicate and education potential customers.

 

2- Why are we hearing so about social media these days, what's the point?

 

Social media has become ubiquitous. It is everywhere. It is not just high school kids. It is about big communities being built online where people are getting together. If you are a marketer, there are 5 million people on Facebook these days. You need an audience and connect with them. Social media provides a platform and a group of people communicating and talking. The second main reason is that it works. There are many ways to create leads and generate positive outcomes.

 

3- What are some examples of how businesses are using social media today?

 

Ken’s favorite example, which isn’t necessarily about generating leads or marketing, is how UPS and Fedex are using social media for customer service. As an example, if you go on Twitter and send a message referring to a lost package with FedEx or UPS, they will see that someone has sent this message and will follow up and respond to resolve the issue. They are using Twitter as a customer service tool. They proactively reach out and follow up with that customer. This is a good use of social media to manage customer relationships.

 

Some 3pls will post their loads on Twitter when they are looking for carriers to take their loads. It is a communication platform. Owner/operator drivers active on Twitter will see the loads available. A lot of logistics companies post engaging content on the Internet to engage clients. Companies like Kinaxis have built a social community bringing people together who are interested in supply chain. You build a community around an industry and your products/services.

 

4- What are some of the other social media platforms you see as being the most important for businesses to focus on?

 

Ken believes there are probably 5 primary platforms that relate best to business. As they have grown they have become the most useful.

 

1. LinkedIn.  A Facebook for business where people post their profiles, which are basically online resumes about themselves. It allows for people to connect with other professionals in their industry. They can join groups focused around their industry.

 

2. Facebook.  Less business related but it is bigger so it has a larger audience. From a marketing perspective you want to go where the people are.

 

3.  Youtube. – Not just about posting videos but leveraging a platform to put commercials about your company, educational content, training information etc.

 

4. Twitter. – Twitter is a micro-blogging site. You can send out 140 character messages to people that may follow you. It is also a great research tool where you can find people and tweets that interest you. You can follow people (follow their Twitter feeds) that share information which is relevant to you.

 

5. Blogging- Most people know what a blog is but don’t appreciate the value. It is a way to present and send out content relevant to people you want to connect with. There are a lot of free blogging platforms like Wordpress which you can use. You can write about topics to establish yourself as an expert in the industry.

 

5- What are some of the "best practices" people should think about as they get started with social media?

 

The first thing to remember is that it is about a conversation, not a platform for direct promotion. First and foremost you should go to social media to listen what people are talking about. Transparency is the only way to build genuine trust. People will quickly realize if you are there to educate or just to sell. You need to offer something of value. By blogging, participating in Twitter, etc., you need to provide information that is of interest to people so they will continue to come back in engage in that dialogue.

 

It is also important to have transparency. You should communicate like you would personally, not from the mountain top. Be genuine in how you communicate with people as a person in a professional way. It is also important to be patient. Social media isn’t something where you will see an ROI immediately. Social media is about establishing yourself as an expert in an industry or niche. This takes months or longer to accomplish. It takes consistency and persistence and it takes time to really see those benefits of social media.

 

6- What are some specific steps people and businesses can take to get started with social media?

 

Ken believes there are 3 really good things you can do to get started. Keep in mind that the goal is to understand how the different platforms work and where the value for you will be and for your company.

 

1. Create a blog – a big part of social media is establishing yourself and providing content that your target audience finds valuable. You need to demonstrate your knowledge and educate customers. When they need help they will know what you have to offer and will come to you. When people are looking to make a buying decision the chances are they will search on Google for people who know about what they need to buy. You want to be that person who shows up in Google when they search on the Internet.  You don’t need to get caught up in how many people follow or read your blog. Google is watching. When people are looking for your help they will find you. Think like a publisher, not a marketer. Make it about educating.

 

2.  Get an account on Twitter. As part of thee set up process Twitter will help get you started following people relevant to your interests. Don’t’ feel you need to start Tweeting right away. You can start by just listening. Anything you are interested in can be found on Twitter. You can use it as an entertainment tool initially. Just observe and see how people are Tweeting. When you do want to engage you can start replying and Tweeting yourself.

 

3. Get yourself set up on LinkedIn and get a company page set up on LinkedIn. Make sure it is updated. Then get involved in groups related to your industry. This is a great way to open up dialogue with other people with similar interests. Management level people should encourage their employees to find industry groups on LinkedIn and participate to make sure their profiles are updated. If they are active, it is essentially free marketing for your company. Managers should not be threatened by employees active on LinkedIn.

 

Conclusion

 

After a few months of following these 3 steps, think about your plan for the next 6 months. If you are getting great feedback on your blog, continue to work on your blog. If you are making good contacts on LinkedIn then continue to refine your profile, join groups and meet new people and participate. Think of the first few months as a way to experiment and find ways to engage with social media. After that point you can think about taking next steps with Facebook, Twitter and/or other platforms.

 

About Ken Kowal

 

Ken Kowal has been working in transportation and logistics for roughly fifteen years. He has held a variety of operations and sales roles. For the last 2.5 years he has been providing logistics consulting and has co-founded a company called Fillship.com which provides order-fulfillment services for e-commerce companies. Recently, Ken has been working on a software startup called e-Routing Guide. E-Routing Guide is a simple transportation-management system.

 

Ken also offers a social media assessment for logistics companies ebook

I interviewed Braden Kelly, an independent consultant to international businesses.  He helps them perform strategic assessments of their business processes and achieve competitive advantage through instilling best practices and new perspectives into their working models. Braden is a firm believer in principles of innovation and is passionate about aligning customers with modern processes that account for evolving technologies.

 

·         Braden Kelley is the founder of “Blogging Innovation”, a blog dedicated to global innovations across industries.

·         Business processes, because they are a source of competitive advantage, usually remain private, and it’s the smaller processes that aren’t really visible, that end up differentiating competitors, says Kelley.

·         According to Braden Kelley, good communication is the driving force behind a healthy corporate culture. Once an organization makes its desire for innovation understood, then its team will usually support the change.

 

 


“We know the technology will change,” says Kelley, “as will partnerships. So, a successful business innovation strategy must account for changes and be sound and solid in its own right.”

 

 

Innovation as a Source of Competitive Advantage

 

 

Braden Kelley helps his international clients, including Microsoft, Misys, HomeAway.com, Roche Diagnostics, Millicom International Cellular, Wunderman, to develop innovation and marketing strategies that distinguish them from other competitors in their industries. He believes that business processes, including the establishment of best practices, are a source of competitive advantage for organizations.

 

Braden explains that competitors within an industry are usually exposed to and restricted by similar tools and  regulations, respectively.  Looking at and analyzing a competitor externally will only indicate a certain degree of present success, but it’s really difficult to assess what’s happening internally within an organization.  Business processes, because they are a source of competitive advantage, usually remain private, and it’s the smaller processes that aren’t really visible, that end up differentiating competitors, says Kelley.

 

 

Encourage Idea Generation

 

 

Kelley has worked with a variety of organizations throughout many industries to help them get started on their innovation journey. He suggests that when it comes to innovation processes, the company culture surrounding the processes is also important and intrinsically related to any sort of process innovation.  Kelley points out that, in his experience, many smaller companies, from start-ups to medium sized companies, don’t have the appropriate resources allocated, or perhaps even available,  for innovation efforts.

 

He believes that it’s important for any sized company or organization to address innovation issues and to dedicate some resources to creating a culture of innovation that focuses on idea generation, selection and development.  Ideas are elemental to an organization’s innovation processes and ultimately linked to any kind of product or service development that intends to leverage competitive advantage.  There’s also the process of transitioning from insights about customer behavior and expectations to following through with solutions based on those ideas.

 

Each organization is unique so the solutions will be particular to their diverse culture, and won’t be easily identifiable from someone looking in from the outside, says Kelley.

 

 

Open Minds and Flexible Capabilities

 

 

According to Braden Kelley, good communication is the driving force behind a healthy corporate culture.  Each organization is founded upon a particular legend or lore, and it’s difficult to initiate changes to what people have come to know and expect. Often times, communication is taken for granted, says Kelley, and as a result, processes may be overlooked because they are thought of as static givens rather than flexible capabilities.

 

Kelley presents alternatives to his clients and helps them to understand that they can, in fact, change their processes for the better.  He suggests that they change their language from ‘This is how we do it’, to ‘This is how we do it until we find a better way’.  If people are open to new perspectives, then suddenly they find that their perspectives have changed, he says.  The result is that instead of process remaining rigid, it becomes flexible and open to continuous improvement.

 

 

According to Kelley, if companies wish to achieve competitive advantages, they require good ideas, attentive planning, solid communication and visibility and some modularity and flexibility of their processes. “We know the technology will change,” says Kelley, “as will partnerships.” So, a successful business innovation strategy must account for changes and be sound and solid in its own right.

 

 

About Braden Kelley

 

 

Braden Kelley, founder of “Business Strategy Innovation”, has been advising companies in the UK, Germany, Asia and the United States on how to maximize profit since 1996.  Braden earned his MBA from London Business School.  He works with global clients throughout a variety of industries, including financial services, healthcare, marketing, technology, retail, online services, mobile telecommunications and more, to address specific innovation strategy, marketing strategy, or other business improvement needs. Braden is also a popular public speaker and the editor of ‘’Blogging Innovation’’ where he shares his passion about innovation. He’s published several white papers, case studies and more than 400 articles for CustomerThink.com, American Express OPEN Forum, The Front End of Innovation, and BloggingInnovation.com.

 

Braden is a leading innovation voice on Twitter (@innovate) and has new innovation book being from John Wiley & Sons. His international clients include Microsoft, Misys, HomeAway.com, Roche Diagnostics, Millicom International Cellular, Wunderman, and more.

 

Business Web Site:

http://www.business-strategy-innovation.com/wordpress/innovation-consulting/
Blogging Innovation:

http://www.business-strategy-innovation.com/wordpress/
Twitter (@innovate):

http://twitter.com/innovate
Innovation Excellence group on LinkedIn (4,400+ members) -

http://www.linkedin.com/groups?gid=1953902&trk=myg_ugrp_ovr
Braden Kelley on YouTube:

http://youtube.com/asktheconsultant
Facebook:

http://www.facebook.com/pages/Blogging-Innovation/322641319493

I had the pleasure of speaking with Robert Brands, an innovation coach, and the author of Robert's Rules of Innovation. We discussed how Robert has recently been doing Innovate to Thrive workshops There are two ideation techniques which work like a charm. Robert’s tips on ideation include:

 

-Focus, focus, focus. Remember that depth is better than breadth for quality idea generation. Drill down and maintain focus.

 

-Prioritize ideas. And keep your eye on areas that enhance perceived value, improve customer relations, and capitalize on competitive opportunities.

 

-Store best practices and ideas. And be sure to reference them regularly. Remember, also, to create a database of ideation session “discards”—used in combination with other concepts from the group’s “toy box,” there might be the makings of a winner.

 

 

Idea Management and Innovation

 

 

The typical ideation processes are brainstorming or alternate perceptions where you do the opposite of a problem and try to solve or work it out. Another process is mind mapping. Robert and I discussed another 2 methods and his favorite: Brain Writing and White Boarding.

 

 

White Boarding

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In any workplace there is typically a coffee or break area. What you would do is post a large white sheet with a problem or a question. On the side of the page you share a timeline, such as Monday through Friday. You leave it with some pens and cross of the days as the week progresses, giving people a sense of urgency and a deadline. Post a question or Problem to be solved. People start contributing to what should be your new products, or how should we solve a particular problem. It is amazing how creative people are and how everyone starts participating. The best thing at the end of the week with notes is to organize a meeting with volunteers who would like to participate and do a brainstorm/discussion. This works like a charm.

 

 

 

Brain Writing

 

 

The Brain Writing method also works like a charm and works every time. It is a quiet start of a brainstorm session. You give everyone a white piece of paper and ask them to submit an idea. Once they have done that they pass it on to their right in the group of 6 to 8, without talking. You get a piece of paper with a idea at the top of the page and you build from there. You either add an additional idea or add a thought or create a thread. The paper goes around the group until it goes back to the originator. Then you basically study the input and have a discussion about it.

 

image2.png

 

 

What is really nice about it is that both people who are extroverts and introverts are easily submitting ideas. It is not only those people who talk a lot. Secondly, people have been building on your idea and it builds a lot of self confidence. The discussion will be very spontaneous. People will then know what it is about.

 

 

The next step is to vote spontaneously on what they think the best idea is of the 6 to 8. This is then followed by a brainstorm or a further discussion to work out the idea a bit further. What is really amazing is that every time Robert does a workshop where even with a diverse group of people not even from the same company or division, great ideas and suggestions always come out. It is a great start to the whole process.

 

The blog closes of with some key tips, such as apply focus, prioritize your ideas, and store used best practices. http://www.robertsrulesofinnovation.com/idea-management

 

 

One of the most important things to ideation and these techniques is the ranking process. Besides the gut feel, which is always good. People should survey all the associates of the group on what the parameters are which you should measure against. Then vote on those parameters so everyone is in agreement and rank the projects against those parameters and make a model where you get a value of the highest scoring idea. Once you do that everyone is on board in terms of what should be worked on.

 

 

About Robert Brands

 

 

Robert F. Brands is President and Founder of http://www.innovationcoach.com.  His hands-on experience in bringing innovation to market spans decades, and includes the creation and improvement of product development processes and company culture. He has delivered on his pledge to bring “at least one new product per year to market” — resulting in double digit profitable growth and shareholder value.

 

 

Robert Brands has led worldwide teams responsible for marketing and sales, operations and R&D and is a regular contributor to real- and virtual-world media and social networking platforms.

I recently interviewed Alex Mesanza who shared his views on the role of a buyer to supply chain organizations:

 

 

1.     Do you believe functional silos are needed to have an effective 'buyer role' in large organizations? Why, why not?

 

Speaking from experience from the silo of supply chain, Alex absolutely believes when you think about supply chain and the role of a buyer and the type of processes you are trying to put in place which are repetitive and predictable for the enterprise, you need to have the centralization of the function in order to capitalize on the full extent of the benefits for those processes. However, it doesn’t always happen. A lot of times you see lines of business that have procurement and supply chain functions embedded in their operations.  This may work well for those individual lines of business, but when you look at it holistically you may see you are missing out on opportunities simply because in large corporations you may have: 1. Duplication of functions, and 2. Sub-optimization of the supply base. In those situations you may have different lines of business both buying the same types of commodities from totally different suppliers. You lose the ability to leverage scale and purchasing power. Those lines of business are not talking to each other. That is the reason for having a centralized supply chain function.

 

The issue with putting a centralized supply chain support structure in place is that in order for it to work as intended, everyone needs to be on board. The value that supply chain brings to a corporation needs to be accurately tracked and well communicated and understood by the various lines of business. At the opposite side of the spectrum you have corporations that have not embraced the value of supply chain and continue to operate at the business unit level, which dilutes the value-add of the buyer or any supply chain function. This is mainly because of the de-centralized and silo-focus nature of the engine that drives P&L, which places (naturally) more emphasis on activities and decisions that benefit the individual business unit.

 

In such environments you find various supply chain roles and responsibilities scattered throughout the corporation without a real coherent sense of enterprise purpose. This “coherent sense of purpose” is the key if you want to capitalize on the savings you can reap by having a single organization looking across the lines of business. It is looking horizontally and vertically, simultaneously, for those specific commodities. Those lines of business that have these functions and the people performing these functions, believe they are doing the right thing for the corporation. However, they are actually only focusing on the needs of the parent lines of business. There is very little to no incentive for a buyer or sourcing professional in one business unit to reach across to a different group to look for ways to work together and find out what type of suppliers they are using in order to use the collaborative purchasing power as leverage to negotiate better prices. This is especially important when talking about highly commoditized goods such as office products, etc.

 

 

2.     In your mind, what is the ideal role and definition of a buyer?

 

The buyer for a particular commodity serves as a gatekeeper for all internal and external activities that touch that particular area of responsibility. The buyer is the gatekeeper for all the conversations, analysis and discussions that happen internally and for all external issues happening with the supply base. The balance between strategic and tactical or transactional activities, which apply to the buyer, depend on how mature the procurement system and processes are. For example, if you have a robust procure to pay and e-sourcing platform that seamlessly integrates accounts payables, procurement, fixed assets and any other shared services functions, this will allow the buyer to leverage technology for transactional tasks, thus freeing up the buyer’s time for more strategic tasks. Transactional tasks would include the processing of requisitions, issuing purchase orders, invoice to PO matching - things that a system could perform for the corporation without having an actual human being performing these mundane transactions.

 

By freeing up the buyer’s time he/she can place more focus on strategic activities such as defining the optimal supply base, continuous price reductions, benchmarking, demand/supply side analysis, and developing relationships with suppliers. Developing relationships with suppliers, in Alex’s mind, is key because a highly trained buyer focusing a bulk of their time in reaching out to other lines of business and suppliers will enable them to internally sell the value of the supply chain function to the enterprise. In order to accomplish this, the buyer needs to be well trained and understand the value they can bring to the line of business and be able to do a little bit of an internal “sales job” as well. The value is not always clear cut. The buyer should strive to become the ultimate match-maker for particular commodities. They need to know the business, know the suppliers, and know the commodity.

 

 

3.     How does this related to cost-plus versus value-pricing?

 

If the buyer is working with a supplier that prices their products using a cost-plus approach, which is common in highly commoditized products such as office products and MRO goods, the buyer will be able to research, benchmarking, and understand what the cost should be for that particular product. They can agree upon a margin and set the price, buy in volume, and monitor the price to ensure that the fluctuations in costs have remained within acceptable tolerances. This would require from the buyer more of a monitoring type of work once the contracts are in place.

 

The buyer can also be working with a supplier that prices their products based on the value they can bring to the corporation. For example, the buyer would not just be buying a widget, but also services that go along with it. If you are talking about strategic alliances with suppliers, it is absolutely key because you want the buyer to understand the value proposition clearly. You also want to push the supplier to increase the value-proposition for the same price. For example, in a 3 year outsourcing relationship with a contract manufacturer, you want to pay for the widgets but also tap into the R&D and manufacturing excellence that the contract manufacturer possesses in order to improve your product and lower your prices. This is a win-win situation. It is a win for the supplier - if you are able to lock in a strategic partnership and continuously deliver value and expand the boundaries of value brought to the corporation, the chances are that the buyer is going to be able to funnel more business to the supplier. It is under the best interest of both parties to ensure value-pricing is used.

 

The challenges to value pricing from the buyer’s perspective is that you may not be able to do the type of benchmarking that you could do with cost-plus pricing. It is more of a grey area. The buyer would probably need to be very in tune with market conditions and what the line of business wants to accomplish in terms of a P&L perspective. The buyer would need to know what the value of the end product will be to the customers and see how that translates back to the value that the supplier is providing. The buyer may not be able to find readily available information to make the best decisions. It requires a certain level of maturity on the buyer’s side. They need to take the time and really understand what that value means to the corporation.  

 

About Alex Mesanza

 

15 years of supply chain experience working in different industries including telecom for 12 years, and financial services for the last 3 years. Within the telecom industry he held multiple supply chain related jobs, all the way from process improvement to running regional and global operations for different aspects of supply chain, specifically reverse logistics, post sales support, and supply chain optimization. In the financial services industry, for the last 3 years, Alex has been leading a procurement operations group, making sure all processes and guidelines were in place to run effective and efficient procurement operations, identifying cost savings opportunities, and constantly looking for ways to optimize the supply base, while monitoring a spend of roughly 1. 7 billion, dollars across multiple categories.

I recently interviewed Gordon Downes, an experienced supply chain professional with 10 years experience in the shipping business.

 

What’s your view on the current status of the “supply chain footprint” concept?

 

 

In my opinion, as supply chain professionals we should be embarrassed about our lack of progress, or even regression in this area...

 

Think back to 2006 after Al Gore’s “Inconvenient Truth”. The environment was high up on the developed world’s agenda and we were making steady progress in lightening the supply chain footprint on the environment. Take for example

 

-          Ships calling at California ports began using low sulphur bunkers or fuel (1)

-          Major companies were publicising their initiatives to improve their footprints on the environment, and consumers were responding well (2)

-          There were even world-wide “carbon footprint supply chain” summits (3)

 

 

But then we all know how the economy changed in 2008, and companies began scrambling for profitability. The concept of a supply chain footprint fell off the agenda almost entirely. To illustrate:

 

-          There hasn’t been a world wide summit since 2008 (4)

-          Many large companies like The Gap, who had published elaborate plans as to how they were going to address their supply chain footprint, haven’t updated their web sites to comment on whether past deadlines have been met or not (5)

-          I even see commentators criticising environmental initiatives, for example – the author of SCM Blog recently wrote a piece titled: “Wait! A Supply Chain Water Footprint? Seriously?” (6)

 

 

I believe we should have made far more progress than this, in spite of the challenging economic conditions.

 

 

So you are clearly not satisfied with the current status of the “supply chain footprint”. What status would you be satisfied with?

 

 

I’ll be satisfied once we have a set of metrics and standards that allow us to measure the “look through” supply chain foot print, covering not just carbon emissions, but other important environmental factors such as how much water is used, as well as what pollutants are used. From there we can drive and track real progress.

 

 

But I need to stress how important it is that the standards be measured on a ”look through” basis – in other words, we need to track the footprint right from each raw material, through to final consumption or disposal of the product.

 

 

One of my favourite companies is Patagonia, and they have done a great job of measuring their supply chain footprint on a look through basis. Patagonia measured their raw material sourcing, production, assembly, transportation and distribution for certain lines of apparel and footwear. (7)

 

By contrast, Puma recently announced that they would study their supply chain footprint only from the point of ownership. Now, for any pair of sneakers, a major portion of the environmental footprint is left when the soles are moulded, the fabrics are treated with chemicals, and then dyed etcetera. If Puma only take ownership of their merchandise at the point of final assembly, then a major portion of their footprint will be grossly unmeasured. (8)

 

 

 

But to measure the “look through” supply chain footprint is far more complex. Is the outcome worth the additional burden of complexity?

 

 

Undoubtedly yes, it is worth it. This is why:

 

 

Everyone on this planet shares the environment, and everyone is affected either directly or indirectly when the environment is harmed. An obvious example is carbon emissions, which drive global warming. A less obvious example is the disposal of waste and pollutants into the water systems. If Chinese firms pollute their oceans, they will reduce their domestic fish stocks, however their demand for fish is likely to remain the same or continue to increase. Consequently, Chinese consumers will draw from already limited international fish stocks.

 

 

Now this is extremely important to consider: if we were able to measure and drive the look through supply chain footprint, the developed world would have far greater influence on the environmental practices in developing countries. Think how China and India sabotaged the 2009 UN Climate Conference in Copenhagen, and President Obama and his counterparts were left powerless (9). But if the major developed nations were to use taxes or duties to penalize excessive “look through” footprints on the products consumed in their countries, the developed nations would have tremendous power to encourage the likes of China and India to act responsibly. Since more than 20% of all China’s exports land in the US, China would be economically forced to step up to the relevant standard of environmental responsibility (10).

 

 

Thus, whilst I agree there is more complexity in measuring the “look through” supply chain footprint; it is possible to do, and the overall benefits more than outweigh the additional burden.

 

 

 

You mentioned using “taxes” to drive environmental responsibility, but considering the state of the economy, can businesses afford the additional reporting burdens as well as additional taxes.

 

 

Let me clarify that taxes are just one possible option to drive environment responsibility once metrics and standards are established. Incentives could also be used to drive this in terms of reduced taxes or even tradable carbon credits being issued to the most environmentally responsible firms.

 

But for those concerned about taxes, this argument should make the most sense: Currently, many American producers are competing on an uneven playing field with imports from the likes of China. We all know that part of the reason why many Chinese imports are so cheap is that the production processes don’t cater as much for environmental stewardship. Whereas in the US, compliance with environmental standards can add major cost to the product process. Now, a US tax placed on products imported from China to offset the benefit of any environmental shortcuts would serve to level the playing fields with US producers. This will stimulate the domestic economy in the US, without being construed as protectionism by the World Trade Organisation.

 

 

 

This does make sense. Do you have any suggestions how supply chain professionals can help to set a standards and metrics for a look through supply chain footprint?

 

 

Yes, I believe there are two steps that we need to take as supply chain professionals.

 

 

The first step is for us to be open and honest about the impact our entire look through supply chains are having on the environment. If we continue to share only the good news about the positive changes we are making to our supply chains, we’ll miss out on the majority of our possible learnings. And if you are worried about any negative publicity in this, bear in mind that Patagonia shared all of the positive and negative findings from their look through supply chain studies, and they received only praise for their initiatives.

 

 

The second step is for us to collaborate on what we learn. We shouldn’t try to treat our supply chain footprints as a source of competitive advantage, but rather we should treat this initiative as a fight for a common cause. We don’t have the time to let competition get in the way of protecting the environment we will leave behind for future generations…

 

 

About Gordon Downes

 

Sales Director at Pinpoint Systems Corporation

LinkedIn Profile

 

Gordon graduated from the university with a bachelors in Law and a bachelors in Commerce. He spent 10 years working for Maersk Line, with 7 years in South Africa, 2 years in Japan and 1 year in Denmark. Gordon recently graduated from the University of Cambridge with an MBA. He is currently based in San Diego where he works for an IT consulting company.

 

Conventional supply chain strategies fall short on delivering real results for corporations. Vivek Sehgal explains why they are irrelevant as strategies and why firms must rethink how they plan to build their supply chain capabilities.

 

Conventionally, supply chain experts have talked about Lean and Agile as strategies. Lean is based on reducing costs and agile is based on improving the responsiveness of the supply chains. Vivek's question is simple - can you really have a supply chain that is lean, but not agile, or agile but not lean? Supply chains are built with a single objective: That of matching demand with supply, and it needs to do this in a cost-effective manner. To that extent cost is not a strategy for supply chains any more than it would be for anything else a business does. Agility is another mistaken strategy for supply chains - agility in a supply chain is not optional. Since demand and supply will always have variability and supply-chain’s only objective is to match them, therefore, supply chains have to be responsive. The speed of that response can be calibrated to suit the business, however, the ability to do so is not negotiable!

 

Consider Wal-Mart: Reducing costs has been their theme throughout their corporate history and they have used supply chain as one of their most effective weapons to achieve this goal. That means that Wal-Mart has a very Lean supply chain, however, the Wal-Mart supply chain just also happens to be among the most Agile - simultaneously. This became obvious when after 9/11, in spite of their size, Wal-Mart was the first retailer to fill their stores with red-white and blue merchandise! Wal-Mart also started quite a few supply chain innovations that at the time were not standard in retail industry, for example, creating their own distribution networks, implementing cross-docking in their warehouses, sharing real-time demand with the suppliers - all these practices made them more “agile” than anyone else, in time, they would reduce costs as well, but they are primarily targeting the responsiveness. Had Wal-Mart focused on “Lean” as a singular strategy, they would not have invested billions in making private data communication networks simply to get real-time data on demand and inventories from their stores so that they can make better allocation decisions in their warehouses. 

 

The other two strategies that are routinely thrown around are Speculation and Postponement. Speculation is based on the economies of scale, the principle that states that the incremental cost of doing business goes down as the volume goes up. But leveraging the economies of scale has nothing to do with supply chain, this is purely a business decision.

 

The postponement strategy is based on reducing the risk of losing a sale by better matching supplies to demand. This is done by postponing the decision to the last possible minute, because forecasts accuracies are higher in the shorter term. But this business model is purely a function of product characteristics - for example, you could not successfully build a supply chain with postponement as a strategy for hospitals for delivery of specific medical kits optimal for a type of trauma. Similarly, applying this strategy for cereal replenishment in a grocery chain will be equally disastrous.

 

The point Vivek would like to make is that speculation and postponement, both are business models and therefore, may drive the design of a supply chain, but they don’t qualify as a generic strategy.

 

Vivek is interested in continuing the conversation from the above (with a discussion on why the generic strategies for business postulated by Porter work, and why there are no equivalent generic strategies for supply chain among the conventional thinking so far).

 

The reason these conventional supply chain strategies fail to work is because they are not based on what is universal in all supply chains. To be a generic strategy that can be applied to all supply chains, the strategy must be based on functions or entities that are common to all supply chains. To understand the concept: Compare these supply chain strategies with Porter’s generic business strategies based on cost, product, and differentiation. Porter’s generic strategies work, because they are based on three things that are universal across all business - price, products, and people - all businesses sell their products or services for a price to their customers. Therefore, the three strategies based on three universal entities of business work as generic strategies and provide the option to a firm to select based on their individual preference of the business model.

 

Thinking along similar lines, what is common across all supply chains? What is it that supply chains manage or control no matter whether they belong to a manufacturer, retailer, freight carrier, or a service provider? Think about the supply and demand - balancing one against the other remains the primary function of supply chains all over, a truly universal foundation for all supply chains irrespective of what industry they may serve. These two, demand and supply, therefore provide the commonality for thinking of generic strategies for supply chains. There are two more things that supply chains control universally, and they are inventory and resources which are the tools that a supply chain uses to balance the supply and demand against the natural variability that characterizes both of them. Therefore, there are the four universal entities that supply chains all over must manage and directly control - Supply, Demand, Inventory, and Resources. And any generic supply chain strategy must be based on one of these four.

 

Vivek is interested in having a further conversation to expand on the four universal elements that supply chains control (demand, supply, inventory, and resources) and a new strategy framework that leverages them to look at supply chains and create effective strategy that would work towards creating the competitive advantages.

 

 

About Vivek Sehgal

 

VivekSehgalpicture.jpg

 

Vivek Sehgal works for Manhattan Associates that is a best-of-breed solution provider in the supply chain applications area. They have over 1,200 customers world-wide and most of the largest retailers use their solutions. Vivek has a long supply chain consulting background and has also written two books on supply chain, one of which is coming out in this December.

 

Vivek wrote a book on supply chain titled, “Supply Chain as Strategic Asset: The Key to Reaching Business Goals”.

 

 

LinkedIn Profile

 

Thorsten Boeck, Founder & CEO at OnOn Shipping, spent most of past decade in container shipping with major carriers in the industry. He is originally Danish but is currently based in Italy. For the past year he has been working on a start-up company called OnOn Shipping. OnOn Shipping seeks to make it as easy to book an ocean container as it is an airline ticket. Their platform is now ready and they have bundled a number of different IT platforms where the customer can book a container by filling in their information and ship.

 

The company mainly aims their service towards small to medium sized freight forwarders with irregular volumes. These forwarders are not able to negotiate good contracts themselves with carriers. The goal is not to have service contracts. Everything is done online to keep overhead to a minimum.

 

Changes taking place in the industry and market

 

Overall, not just in shipping, consumers are becoming more accustomed to buying online. They are more confident in not just buying things like books but actually doing business online.  This is what makes OnOn Shipping’s business possible.

 

The technology required to do this business is becoming mainstream. Most of the things you need to run a company online today can usually be found through a service provider that sells Software as a Service (SaaS) at little or no cost to get going. Your IT costs will be variable. You can pay per use, per month or a per booking basis. There are 2 major drivers:  1. People are becoming more confident in doing business online and 2. Technology has gone mainstream.

 

Shipping in the past and the OnOn Shipping alternative for the present and future

 

In the past the industry relied on service contracts. Practices in the shipping industry were based on manual work and people sitting in offices around the world. Today, major corporations, forwarders, and NVOCCs are sitting in expensive waterfront locations in capitals around the world. The OnOn Shipping alternative is to handle everything online sitting in inexpensive locations. They automate large parts of the transactions.

 

However, there is a reason for the large amounts of people in the traditional shipping business. They are there to handle exceptions. There is still a lot of special cargo that requires more manual work, such as cargo from small ports that require transshipments. Yet, the things that can be automated have become commoditized. This is where OnOn Shipping adds value.

 

OnOn Shipping only handles 20’ and 40’ HQ dry and non-hazardous cargo moving between major hubs such as QingDao China to Los Angeles and Northern Europe. Shipments to Northern Europe have become a commodity and can be handled with little overhead. This is the alternative OnOn Shipping provides.

 

 

Similar to low cost carrier model of the airlines

 

The OnOn Shipping business model is similar to the low cost carrier models seen in the airline industry, such as Southwest who pioneered the concept in the 1970s. Like Southwest, Ryan air and other low cost carriers, OnOn Shipping provides a no frills product. They are taking the product down to bare-bones, moving a box from point A to point B. Ryan air moves passenger from point A to point B in the cheapest possible way. With OnOn Shipping a customer can book a container online and if everything goes well they would never be in contact with a human being. By doing things yourself there is more work on your part, with less luxury and no personal touch. However, the lower cost is the essence of the value proposition. What you see with the low cost carriers is that they unbundled their service offering. They provide a basic flight. Customers can then pay on top for extra services. The can pay for coffee, get priority booking, etc. OnOn Shipping is not offering this yet, but could in the future. The customer only pays for what he or she really needs.

 

Market Focus

 

OnOn Shipping is starting out by offering service between Hong Kong and Rotterdam and Hamburg, just to get things started. They plan to move into China and more ports in Northern Europe. The company has chosen this strategy because it is the easiest, biggest corridor in the industry, with the largest volumes. Since they are only selling to small segment of the market, it is important they get in where there is a lot of volume.

 

OnOn Shipping will sell to small forwarders and only dry cargo, not hazardous or reefers. They will not handle negotiable Bills of Lading, but will instead sell on a Way Bill. The service will be offered only between major hubs, not satellite or feeder ports. Thorsten believes theirmarket segment is 2% of the overall market. It sounds small, but it is enormous when seen from the big picture.

 

Recommendations for Entrepreneurs

 

Thorston says to just ‘Get going’. There are lots of opportunities there. If you have a bit of technical savvy and industry experience it has never been easier to get going. Communications over Skype is free or cheap, and you can buy the software you need from a lot of open source or low cost providers. Thorston also thinks the industry has built up much larger overhead than required. The customers are not willing to pay for that overhead. The opportunity is there.

 

It will also help if you have knowledge of a specific niche that requires a special service. 5 years ago the market may not have been large enough to support a business, but today this may not be the case. For example, TCC point to point service between China and LA. A similar niche can be found in other NVOCC and freight forwarding worlds.

 

To learn more about OnOn Shipping go to ononshipping.com. They have a blog and can be found on Facebook, Twitter, Linkedin.

 

About Thorsten

thorsten_boecksmall.jpg

 

Thorsten Boeck

Founder & CEO at OnOn Shipping

LinkedIn Profile

Consequences of the recession regarding supply chain management and innovation

 

Dustin Mattison interviewed Mike Goodson, owner and manager of Hospital Supply Chain Services to hear his views on the consequences of the recession and supply chain innovation. 

 

Being aware of the value of an effective and cost efficient supply chain is important. Mike Goodson knows that the cost of managing materials can exceed 35% of a hospital's operating budget, with nearly 20-25% attributable to supply costs alone.

 

The recession has increased pressure on materials managers to reduce cost for supplies, equipment and purchased professional services as a result of the decline in hospital revenues, the increase in uncompensated care and the rise in the cost of medical supplies.

 

Supply prices are rising while hospital and reimbursements have been decreasing. Manufacturers have increased costs to keep up with raw material prices, inflation rates and a weak dollar. As a result of these economic pressures, hospitals should increase their efforts to make the supply chain more efficient and cost effective.

 

A roundtable discussion at the 2009 meeting of the Association of Healthcare Resource & Materials Management centered on opportunities to remove cost through supply chain optimization.

 

Decreased margins prompt facilities to look for opportunities to either increase revenue or decrease cost. If margins were, for instance, 5%, it would require $20,000 in increased revenue to provide the same financial benefit as a $1,000 reduction in supply chain costs (which, by the way, goes directly to the bottom line). I’m certain that many facilities would be pleased to see 5% margins again. The sad state of affairs is that margins have shrunken considerably and the benefit of supply chain optimization has become even more attractive in removing unnecessary costs.

 

With the appropriate executive leadership, an environment can be created that is more receptive to enlisting clinicians and physicians to examine the rationale for more efficient management of physician preference items. Physician preference items are recognized as one of the primary drivers of increased supply cost.  

 

Physician preference items are items that, for a multitude of reasons, are requested by physicians to be purchased from specific suppliers. These items have not necessarily been evaluated by an interdisciplinary team of materials managers, infection control professionals, clinical educators, finance or reimbursement professionals or peer physicians and clinicians to determine if the product function matches or exceeds the requirements and if the item is cost effective prior to purchase and use.

 

Profitability also has to be a critical part of the analysis. Hospitals cannot remain in business if they lose money when they perform a procedure. Mike Goodson feels confident that physicians who insist on specific products from specific vendors genuinely believe that they are creating value for both the patient in terms of the clinical outcome and the facility in terms of the reimbursement exceeding the cost.

 

Efforts to make the cost and clinical outcomes visible can be an effective tool to begin discussions that compare the cost effectiveness of these sourcing choices related to desired clinical outcomes.

 

Lessons Learned

 

Operating margins are so low that hospitals are at great risk if they can’t either increase revenues or decrease cost. A need is now being recognized to make better supply chain decisions that reduce cost while maintaining positive clinical outcomes. We now are being forced to look more acutely for the opportunities to remove unnecessary cost by fine tuning our supply chain operations.

 

By clearly identifying and visually representing key business processes and applying lean principles, reengineered business processes can be defined and implemented in a manner that can be continuously monitored and adjusted for efficacy. These redesigned processes can enable improved and cost effective clinical outcomes.

 

Additionally, Value Stream Mapping and Value Analysis present previously overlooked opportunities to capture additional cost savings. 

 

Elimination of multiple vendors by consolidating functionally similar products into a single source can provide increased volume which can be traded for reduced price.

 

Interdisciplinary Value Analysis processes can provide facts about purchasing decisions that reflect consideration of finance, logistics, reimbursement, infection control implications and clinical education considerations along with the clinical knowledge provided by physicians and clinicians when sourcing new products, equipment or professional services.

 

All of these tools are suddenly receiving more deserved consideration in providing the information for making fact based decisions. We are certainly better off that this crisis is creating a need to find or rediscover the necessary tools for making sound clinical and business decisions.

 

What we will be missing

 

 

We will be missing the comfort of knowing that we can buy a lot of customer satisfaction with excessive inventory, that we can ignore the effect of buying products without having a team of individuals consider the facility wide implications of cost, functionality matched more closely to requirements and quality for the task at hand.

 

 

We will be missing the comfort of thinking that price is the only important factor that needs to be considered in the healthcare supply chain.

 

We will be missing the comfort of thinking that we can put together a value analysis team without clearly defined and reproducible processes that bring together all of the information required to make sound fact-based business decisions.

 

Change in thinking required

 

Many materials managers are not always familiar with or adept at identifying process inefficiency, crafting redesigned process and implementing changes in the way business processes are performed.

 

Mike is beginning to see more hospitals implement business process reengineering skills. Every hospital needs individuals that can facilitate teams of stakeholders in analyzing business processes, recognizing opportunities, crafting, implementing and continuously monitoring their solutions to keep them moving toward attainment of their defined cost reduction goals.

 

The Association for Healthcare Resource Materials Management periodically surveys hospitals and publishes average inventory values of participating facilities. Where hospital materials management departments may be managing storerooms with supplies valued at a 2-3 hundred thousand dollars, it is not unusual to find $2-4 million dollars in high tech supplies in the operating rooms and other high tech departments managed by clinicians instead of supply chain professionals employing industry standard leading practices.

 

Healthcare materials managers will need to be more aggressive in becoming involved in the management of these costly high tech supplies, equipment and purchased professional services in the areas of their facility where they previously had minimal interaction.

 

Since healthcare is different than other industries, there are exceptions to stocking levels for these expensive supplies.  It may be necessary to have specific amounts of these items on-hand regardless of historical demand. Industry standard techniques can still provide a fact based starting point for collaboration with cardiac, neurological, orthopedic, etc service line managers in establishing stocking levels based on both facts and clinical knowledge. Opportunities in these areas have sometimes been in the millions of dollars in potential reductions in inventory. Additional opportunities that can contribute directly to the bottom line are standardization of either similar products or the price of similar or identical products that perform essentially the same function. Standardization has traditionally provided an opportunity to reduce the number of suppliers to enable trading the consolidated purchasing volume for price reductions. The materials manager will also need to address physician preference items by obtaining a clear understanding of the physician’s requirements and matching those to the most cost effective sources to assure high quality clinical outcomes.

 

Facilities need to do a better job at controlling the integrity of the information in their materials management system. A failure to standardize and control data integrity will lead directly to an inability to produce actionable information from the data.

 

Group purchasing organizations (GPO’s) are differentiating themselves from one another by their supply chain optimization offerings. They can work closely with supply chain personnel to control costs in physician preference items, purchased services and capital equipment. Some GPO’s offer data and spend analysis tools for making sound, fact-based decisions.

 

Manufacturer’s and distributor’s assistance can and should be solicited as some have service offerings that contribute to cost reduction strategies.

 

There are some miscellaneous industry groups such as the joint venture between the Association for Healthcare Resource & Materials Management  and the University of Arizona which is developing a potentially promising tool for comparing the non-labor supply spend with other peer groups.

 

Materials Managers will need to learn to seek out these additional resources to take advantage of every opportunity to remove unnecessary costs from the supply chain.

 

Mike’s examples and experience

 

In the 1970’s, reimbursements by insurance companies were based on a fee for service model where total hospital costs were reimbursed. In the 1980’s, there was a move from cost based reimbursement to a prospective payment system based on disease related groups and the DRG model was adapted. Hospitals began receiving a fixed reimbursement amount based on the patient’s diagnosis regardless of their actual costs to treat the patient.

 

A few years ago, Mike assisted a value analysis team in examining their highest volume and most expensive DRG’s (Disease Related Groups).

 

One of the surgical procedures was examined by a multidisciplinary value analysis team to determine if the procedure utilized the appropriate supplies and purchased professional services that met the surgeon’s requirements in a cost effective manner and compared favorably to reimbursement.

 

The team’s analysis revealed that cost exceeded reimbursement every time the procedure was performed.

 

Every aspect of the labor and materials that were required were reviewed for opportunities to remove cost. It quickly became obvious that the choice was to reduce the cost or discontinue performing this particular procedure.

 

When the vendor was consulted about the difficult choice the hospital was facing, they simply decreased their cost sufficiently to allow the hospital to achieve the required margin to make the procedure profitable. When faced with the option of losing the customer or decreasing the cost, the manufacturer lowered the cost.

 

When examining high-dollar supply items, it pays to look at the cost of the entire process involved in delivering the care and not just the cost of the individual supply items.

 

Another examined procedure revealed that the facility had been assigning incorrect reimbursement codes. Frequently, consulting with the vendor reveals that they are very knowledgeable about appropriate coding to maximize reimbursement.

 

So one of the ways of working that has not traditionally been performed, is to begin with the most expensive procedures and determine your costs compared to reimbursement, looking for opportunities to remove cost whenever possible.

 

 

About Mike Goodson (LinkedIn Profile)

 

Mike Goodson.jpgAs the owner and manager of Hospital Supply Chain Services, Mike Goodson has performed healthcare supply chain process improvement projects and information technology implementations resulting in supply chain cost reduction and improvement in delivery of materials management services for more than ten years.

 

Mike Goodson possesses a sound working knowledge of healthcare supply chain systems, has excellent problem solving skills and the ability to effectively communicate and operate within all levels of an organization.

 

Mr. Goodson is recognized as a Certified Materials and Resource Planner (CMRP) by the Association for Healthcare Resource and Materials Management (AHRMM).

 

Mr. Goodson has more than ten years combined experience as a senior healthcare supply chain consultant for Ernst and Young, Healthlink (now IBM Healthlink Solutions) and PricewaterhouseCoopers where he performed process improvement assessments and initiatives and materials management system implementations. As a healthcare supply chain consultant, he also served as an interim Director of Materials Management for a major midwestern university healthcare facility and an interim operating room materials manager for the largest healthcare system in west Texas.

 

Mr. Goodson was employed by Columbia Healthcare (now HCA) for eight years as both a Director of Materials Management at two different provider facilities and as a corporate systems installer where he implemented more than 20 systems in Columbia Healthcare facilities throughout the United States.

 

About Hospital Supply Chain Services

Hospital Supply Chain Services helps optimize healthcare facility and/or operating room materials management business processes, whether enabled by technology or not, and provides interim management when necessary.

The mass production business model, has it burned out?

 

Implications for supply chain professionals.

 

 

"What happened?"  It is clear that the Industrial Age, Mass Production Business Model complete with its "measurement mentality" has "burned out."  According to the Article on page 110 of Fast Company, even the Icon's of the Industrial Age, Madison Avenue Advertising Agencies are being severely affected

 

Supply Chain is an Artifact of the Industrial Age

 

Doing things differently can start with something as simple as linguistics. Take the phrase "supply chain," for example. Tom sees the word "chain" as a throwback to the Industrial Age, and in his view a supply chain isn't a chain at all, it is a supply network with very different economics. It is a supply network that must operate in real time. A chain is linear, a network is exponential. In talking with SCM professionals they recognize that the word “chain” is inaccurate.

 

As an author, Tom used the example of Amazon.  "They send me an order, I fill it, and they ship it to you in one day. It's not a chain, it's a network -- a logistics network. The economics of networks are one of increasing returns, while the industrial age is one of diminishing returns. It’s just a completely different economic model and people see that when they participate in my simulation." To learn more about the concept of networks, Tom recommends Dr. Barabási’s book Linked.

 

Mass customization as a business model requires an incredible real-time supply chain/supply network logistics systems. Professionals in this regard are absolutely brilliant, many of them are way head of the curve in understanding how these logistics systems can and should work.  Tom has incredible respect for all the people who are operating logistics systems today.

 

Is the industrial age business model burned out?

 

Dustin Mattison interviewed Tom Wentz on 12/14/10. Tom Wentz says the Industrial Age business model has burned out, and that it became very apparent, as early as the 90s, that the model's focus on efficiency and Six Sigma hadn't produced the results everyone wanted. What Tom means by burned out is that a star in the heavens 50 light years away would have burned out and we wouldn’t see the effect for at least 50 years. The industrial age business model burned out in 80s and early 90s. We didn’t see the extinguishing of the light until recently. We know this because all of the measurement mentality, metrics, market share and all the things of industrial age are not irrelevant, but they frankly don’t produce the results they used to produce. No one can plan based on the assumptions of the industrial age business model.

 

Economic times were good in the past, so company leaders searched for a place to lay blame. That search led many to focus on people as the source of the problem. Words like "empowerment," "motivation," and "accountability" were all the rage as executive level and middle management employees pushed for someone to take responsibility. According to Tom Wentz, "You can take all the psychological aspects of it and blame somebody for their negligence, but the truth is, it was the business model."

 

The difficultly is that it treats people like things, costs and functions. Over the past 100 years people learned to behave in that regard. People became eliminated as the recession has taken hold. The key to today’s business model is that people hold the creative potential necessary to ignite the transformation.

 

Mass customization business model is not a business strategy

 

Mass customization as a business model is nothing new. It is how you buy paint, how Burger King competed with McDonalds, how we buy custom built homes, etc. However, it was totally new in the early 80s and 90s with notable examples being Walmart, Dell, Microsoft, Harley Davidson as well as a host of companies today, such as Disney. The article in Fast Company on page 110 about Madison Avenue gives further evidence that advertising is being destroyed along with music and other things in the media world, in favor of a customized one-on-one to customer way of doing business. This is a new business model, not a business strategy.

 

The supply chain/network professionals are the key or hub to making it work. Many of them know this and have embraced this. It is an exciting transformation happening at this time. However, we don’t know how to speak about it and many people are not aware of it.

 

Suggestions for how leaders should proceed with their business in 2011

 

Leaders basically need to embrace the fact that we are in a transformation instead of a recession. A recession has a beginning and end. The assumption of a recession is that things will return to normal. There is not going to be a return to normal. We are going to return to different. Basically we are in a transformation.

 

Leaders at all levels must give their people a very objective and non-judgmental, non- blame oriented explanation of what 2011 will bring. They must enroll their people in a vision of what different looks like. Different is a new business model. There is plenty of evidence in the Fast Company article where they quote that the nightmare is that the business model has been destroyed, collapsed, an utter collapse of the industrial business model. Leaders must be clear with their people, not to create fear, but that the future can be created and it is different. Create a vision of what different looks like.

 

Many people confuse vision and strategy. Strategy is more of the same, something faster, deployment of resources to build things, etc. The vision they need is of an energy field, united we stand divided we fall. The energy field they need is called alignment. Alignment is a different way to think of organizational behavior. It is different than team work with the distributed organizations of today. Teamwork isn’t the right behavioral adjective to get people aligned to serve customers in a different way.

 

The leadership behaviors that are needed are getting behind the creation of a structural framework that underlies any organization. It starts with vision, mission and purpose, accurate assumptions, philosophies, core value and then measurements.

 

Defining that structural design should be an activity that the leader gets everyone participating in. A lot of people feel they have never been involved in that type of work because in the industrial age business model the leader has always done the strategic planning retreats. Today’s leaders must get everyone enrolled in creating the underlying structure of the organization.

 

It is not an urgent need to get it done, but to get it started. Getting people involved is the most important activity in igniting their creative talent. Many organizations who get people involved all of a sudden star to see the creative potential in the organization.

 

The challenge for leaders is simply to get their people enrolled in a process that is non-judgmental, non- blame oriented. They need to make it clear that the future is worth creating, and everyone in the organization needs to get involved in that activity. Many people in the old industrial model would stay out of the process because they would be self-deceived and self-justified. But this is a future worth creating and leaders need to be enrolled in the process.

 

The absolute key is to simulate it, find a way to simulate going from the industrial age to mass customization age. It is not linear, not within the thinking of the industrial age business model and the MBAs of the past. Act as the astronauts did. Find a simulation.

Tom Wentz does have a simulation that he has conducted over the past 15 years and it allows people to experience change. It is a lot of fun and is very dynamic and effective.

 

In Tom's opinion, the most forward-thinking aspect of business today is business model innovation, and despite examples set by companies like Walmart, most CEOs and senior leaders don't know how to apply it to their own companies and product offerings. That is where Tom's day-long simulation come into play -- a process he says not only proves the validity of the mass customization business model, but also proves to every member of the company that they have what it takes to make it happen.

 

The simulation is not computer based. It is a hands-on, very human experience. Participants are randomly assigned jobs in two factories that manufacture a paper origami "flier." Some participants step into roles as cutters, folders, or painters, while others become customers, sales-people, or plant managers. The dynamics are driven by customer demand rather than business strategy. The transformation is amazing to watch, Tom says, because out of structure comes chaos and out of chaos comes creativity, innovation and happy customers -- In his 10 years of conducting the simulation Tom Wentz says it has never failed.

 

Mass customization is a massive transformation, Tom concedes, but very doable by any company. The biggest barrier is getting senior leaders involved. The Industrial Age business model, and all other leadership and management models, fall within what Tom calls the "problem-solving  models" category. When senior leaders see a problem, Tom says, many become self-deceived and look for someone or something outside of themselves to blame. To make his point, Tom referenced the book, Leadership and Self-Deception by the Arbinger Institute, which further illustrates the issue. Stephen Covey, Dee Hock and many others agree that moving away from the problem-solving model makes many senior leaders feel vulnerable, even embarrassed, that for years they have been "yelling at the water" and accusing everyone else of being the problem.

 

Over the years, Tom says he has spoken a number of senior leaders who weren't interested in his mass customization simulation because they saw it as training and felt it was beneath them. Those who have participated, rolled up their sleeves, got involved with their people and executed the transformation in the real world in as little as three months to a year.

 

Sooner or later, Tom says every company will have to make the transformation to mass customization, and pushing the Industrial Age business model harder, faster and leaner won't get them where they need to be. Creativity while creating is the definition of innovation, and what is required to create a truly innovative business model is doing things in new and different ways. In Tom Wentz' opinion, "Different has arrived."

 

Tom's Websites:

 

www.transchange.com

www.differenthasarrived.com (describes in detail what the simulations are all about)

 

About Tom Wentz: Tom Wentz is President of Corporate Performance Systems, Inc. located in Westerville, Ohio. He is a 1965 graduate of The Ohio State University with a BSIE and MBA and worked for The Trane Company for 17 years in corporate marketing and sales management positions.

 

Tom is an active performance consultant specializing in the processes of leadership and organizational change and has helped transform countless businesses over the past 16 years. These transformational change concepts have been applied in banking, insurance, manufacturing, health care, utility, and high-tech industries; law firms; restaurants; travel; government agencies; universities; and professional associations.

 

 

He is the author of Transformational Change: How to transform Mass Production thinking to meet the challenge of Mass Customization and Swing to Balance; Golf and Leadership. Tom leads simulations, sales and leadership seminars to help businesses transform the business of their business.

 

Recommended Reading from Thomas K. Wentz:

 

 

Transformational Change: How to transform Mass Production thinking to meet the challenge of Mass Customization by Thomas K. Wentz

http://www.transchange.com/sections/books/trans.asp

 

Leadership and Golf: Creating Organizational Alignment  by Thomas K. Wentz and Bill Wentz

http://www.transchange.com/sections/books/swing.asp

 

 

Mass Customization: The Next Business Frontier by Joe Pine

http://www.amazon.com/Mass-Customization-Frontier-Business-Competition/dp/0875849466

 

 

Leadership and Self-Deception by Arbinger Institute

http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dstripbooks&field-keywords=Leadership+and+Self-deception&x=0&y=0

 

Linked: The New Science of Networks by Albert-László Barabási

http://www.amazon.com/Albert-L%C3%A1szl%C3%B3-Barab%C3%A1si/e/B001IGQIYW/ref=ntt_athr_dp_pel_1

 

 

One From Many: VISA and the Rise of Chaordic Organization by Dee Hock

http://www.amazon.com/One-Many-VISA-Chaordic-Organization/dp/1576753328

 

New Rules for the New Economy: 10 Radical Strategies for a Connected World by Kevin Kelly

http://www.amazon.com/New-Rules-Economy-Strategies-Connected/dp/0670881112

I recently interviewed Maureen Kelsey to discuss the topic of building partnerships that create market opportunities to prosper in the 21st century.Maureen started off by explaining that we live in accelerated times when innovations like Youtube, Facebook and Twitter, in something like the blink of the eyes, revolutionized the way we communicate and behave.

 

At the same time we face diminishing resources, overcrowded markets, an economic system in the throes of change, to some as yet undetermined new form, massive job loss, declining standards of living within the traditional industrial powers and increased racial tensions that destabilize society.

 

This signifies that our economic model requires rethinking in our SME operations and our local practices, considering the effects on a global scale. The growth and complexities of a global economy and the coordinated efforts to respond to the financial crisis have increased the line of reasoning for a more sustained and systemic global cooperation.

 

Dustin Q: So, how can SMEs innovate?

 

Maureen Kelsey A: First, let’s take a look at what is innovation:

 

“Innovation can therefore be seen as the process that renews something that exists and not, as is commonly assumed, the introduction of something new. Furthermore this makes clear innovation is not an economic term by origin, but dates back to the Middle Ages at least. Possibly even earlier.

The central meaning of innovation thus relates to renewal. For this renewal to take place it is necessary for people to change the way they make decisions, they must choose to do things differently, make choices outside of their norm. Schumpeter c.s. (~1930) seems to have stated that innovation changes the values onto which the system is based. So when people change their value (system) the old (economic) system will tumble over to make room for the new one. When that happens innovation has occurred. So innovation must be seen as something that does, not something that is.

 

On a lower level, innovation can be seen as a change in the thought process for doing something, or the useful application of new inventions or discoveries It may refer to incremental, emergent, or radical and revolutionary changes in thinking, products, processes, or organizations.”  http://en.wikipedia.org/wiki/Innovation

 

To get to the highest levels of quality and performance, one must go through the door of culture. McKinsey Quarterly currently reports the majority of companies are seeking innovation through the organization, which is culture, and remains focused on core business.

 

 

When one embraces and celebrates culture, diversity and collaboration:

 

Benefits delivered are real dialogue, exchange of ideas, exploring varied perspectives and robust collaboration bringing creativity, depth, range, balance and innovation.  When we allow differing perspectives, we stimulate exploration, increasing and expanding our options.

 

Diverse outlooks compel us to uncover potentially damaging implicit, inferred assumptions. We are freed up to synthesize new ideas combining options previously considered at odds. We are energized to develop processes capable of supporting innovative solutions built on consensus that are enduring.

 

So, this means:

 

  • Together we change business, organizations and leadership.
  • We collaborate, cooperate and share resources.
  • We rethink sales, marketing, R&D, customers, products and services.

 

                     

We use a business model that equals back to productivity and simplify the business model—simpler for customers and more accessible to customers.

 

Dustin Q: How can SMEs rethink?

 

Maureen Kelsey A: Change the mindset—Think Globally, Act Locally.

 

The improvement of business performance for SMEs in both the national and global arenas passes through a change of perspective—we use our brain power united with passion and the imagination, and to it we add the ingredient of collaboration engaging our best resources focusing ourselves on our national priority.

 

From one side technological innovation has allowed a free flow of information and consequently a broadening of the labor market at a global level, from the other side it brings attention to the scarce capacity of the world economy to guarantee work productivity and talent management.

 

We need a cultural transformation guided by a holistic vision that operates in the real world which is made up of living organisms; people are not machines.

 

A reference to a McKinsey Report 2010: The economies must become more productive and innovative in product and process and in finding and keeping talented employees and improving needed skills, the largest skill deficits are in three functions: management, R&D and strategy.

 

Dustin Q:  How can SMEs improve productivity and sales?

 

Maureen Kelsey A: A holistic approach to achieve overall optimization and increased sales and productivity:

 

· Strategy—market based solutions, business case, marketing and branding, social media and internet integration

· Organization—cultural change, structure, functions, personnel development and training integrating on-site action learning

· Process and product innovation—BPR, customization of products to market, supply chain

· Productivity improvement—baseline and improve KPIs, align all the above to achieve overall optimization

· Ecosystems—create them where and when possible

 


Dustin Q:  How do SMEs do this?

 

Maureen Kelsey A:

 

Usually, we think about what we want to do and then how can we fund it when really the most important question is:  how do we maximize our efforts and expand our impact to convert good intentions into real positive change for the better?

 

Considering research data, an innovative, holistic solution is needed that is aligned with IMD World Competitiveness Yearbook 2010 and The McKinsey Report 2010. These indicate where to focus on improving productivity and innovation of management, process and products. They also  highlight the closing of skill gaps in the areas of new management, strategy and R&D, combed with a methodology that further aligns and incorporates the best of the world’s innovation centers.

 

Call to Change has developed a “pilot program” that is both local and global and is an opportunity to realize a “disruptive innovation” as defined by Harvard.  We move forward to fund this program and invite you to visit us—we are innovators from 11 countries and include a researcher at Euro Institute for cultural evolution and management innovation who is also a key rep for the global organization Management Innovation Exchange headquartered in Silicon Valley.

 

 

Call to Change has a page on Facebook

 

Call to Change leaders:

 

Maureen Kelsey

Paola De Vecchi Galbiati

 

 

About Maureen Kelsey (LinkedIn Profile)

 

Maureen is a certified global strategy consultant, program manager and international development consultant in the private and public sectors and have an extensive background in global markets.


Core competencies:

· Alliance with board and C level

· Knowledge, understanding and experience of global / local markets and business from Fortune 500s to the small and medium enterprise arena

· Strategic and tactical planning through implementation—business, organization, process and technology

· Complex transformation, transition  and  performance optimization projects with cross functional, regional and country teams

· Extensive cultural diversity experience spanning 30 countries

Business Process Flexibility and Innovation

How to build it in as a core competency and culture

 

 

Summary: Deborah Mills-Scofield explains why she thinks companies should put more emphasis on innovating and improving business processes. She also shares her views of the importance of creating a process-driven culture that does not have to come at the expensive of creativity.

 

 

- Most people look at open innovation as partnering with suppliers in terms of delivering new products and services to the marketplace. What is overlooked is how can you and your supplier look at processes

to re-invent the work you do?

 

- Overlooking the process side of business might be chalked up to that fact that it is not as "fun or sexy" as the front facing side of business, but as more people begin to recognize the financial and competitive advantages, the balance is shifting.

 

- Because business and industry models are constantly evolving, Deborah Mills-Scofield feels it is important for companies to build a culture around flexibility and adaptability in all processes.

 

- In the end, process flexibility boils down to building a culture where people are encouraged to question assumptions, and providing venues for open exchanges of ideas and diverse viewpoints.

 

 

 

--

 

 

In Deborah Mills-Scofield's experience, business processes are a source of competitive advantage that are often overlooked. Most people, she says, tend to focus on anticipating, meeting and exceeding their customer's needs, which she acknowledges is extremely important, because it you're not focused on your customer, you won't survive, but... more attention should be paid to competitive advantages that can be realized through streamlining, reevaluating and continually improving your business processes.

 

 

Overlooking the process side of business might be chalked up to that fact that it is not as "fun or sexy" as the front facing side of business, but as more people begin to recognize the financial and competitive advantages, the balance is shifting. Deborah believes more emphasis should be put on innovating and improving business processes, and creating a culture that is process-driven. A process-driven culture, she warns, does not have to come at the expense of creativity. "Process and innovation are not oxymorons, they go hand-in-hand," she added.

 

 

 

 

Processes and Open Innovation

 

Most people look at open innovation as partnering with suppliers in terms of being able to deliver new products and services to the marketplace. What is overlooked is another way to look at it: How can you and your supplier look at processes to re-invent the work you do?

 

 

 

Companies are beginning to re-define work in their facilities. There are a lot of opportunities for suppliers to be a part of that. They are now walking through their suppliers facilities and asking how to improve processes, lower energy costs etc.

 

 

Most companies don’t engage suppliers at that level. They focus on what to bring to market, rather than what processes they can improve internally. They complain about how bad they are treated by their suppliers but don’t look how they treat their own suppliers. By working closely with suppliers you can come up new products with inter-changeable components, mass customizations, and adaptability. There are a lot of things you can make without a lot of parts. If you work with suppliers you may be able to make the parts you need when you need them. There are a lot of ways to re-invent internal business processes.

 

 

However, very few companies look at it that way and it is a huge area ripe for innovation. By getting suppliers involved and part of execution and helping them with their processes, it is in their best interest to cooperate because the longer you are around means they will also be around.

 

 

 

Executing Excellently

"I think, one of the biggest advantages a company can have is simply executing excellently. Even if your product is as good as the others or good enough, if you can execute, be efficient and streamline, you can have a tremendous competitive advantage that can be hard to replicate," Deborah said. Having "grown up" at Bell Labs and AT&T, much of Deborah Mills-Scofield's early business process experiences were tied to data-driven processes -- how to capture data quickly and have it displayed in such a way that it could be analyzed. Getting the information you need applies to every company and every industry, Deborah said, but in her experience it goes much deeper than capture, display and analyze. It's really about becoming excellent at, and institutionalizing, those processes.

 

 

Deborah Mills-Scofield knows firsthand that some business processes, including those that may seem very obvious, rarely get done, like business planning as a process, and tracking measures, successes and deficiencies as a process. "I am amazed at the number of clients I’ll work with where the C-suite doesn’t even have regular staff meetings, or if they do, they’re not going over a regular-set agenda of where the plan is, what are the outages, what’s going well, what’s not going well, and a process for how to improve those,” Deborah noted.

 

 

Speaking from personal experience, Deborah Mills-Scofield says she is a big proponent of developing and implementing processes for evaluating suppliers. "There’s a phrase used in industry called ‘voice of the customer,’ where you go out and spend a day with your customer and you understand what they do and what they need," she explained, "but very few companies do that with their suppliers ."

 

 

To that end, Deborah would like to see more companies consider the idea of adopting a process she calls 'voice of the supplier,' something she has not only observed, but also applied to her own clients with great success. Using the same principals as 'voice of the customer,' Deborah advises companies to develop a 'voice of the supply' process aimed at gaining insight into how suppliers work, how their factories and plants operate, what measures might be taken to make suppliers more efficient -- even taking responsibility for identifying internal process that will make things easier for suppliers, which can translate into getting products faster and less expensively. "It's almost like treating your supplier as a customer and building up a rapport and a relationship with them that then allows you both to get more out of each other," Deborah added.

 

 

Building Flexibility and Adaptability into All Processes

Because business and industry models are constantly evolving, Deborah Mills-Scofield feels it is important for companies to build a culture around flexibility and adaptability in all processes. In fact, she sees process flexibility as a core competency at the macro level. "If it's not part of the culture of the company, it's not going to happen. It starts at the very top," she said, "and it's built into performance management, reward, recognition, et cetera."

 

At the tactical level, process flexibility can be built and managed by leveraging the diversity of thought found in cross-functional teams. Using supply chain as an example, Deborah said "Don't rely exclusively on your supply chain and manufacturing teams for process innovation, get sales and marketing, suppliers, and even customers involved for a complete end-to-end view of the issues."

 

 

Different views and viewpoints drive different ideas for reinventing processes, and the real key to success, according to Deborah, is questioning your assumptions. You might say to yourself, we've always received our materials this way, in this package, at this time, at this dock, but don't be afraid to ask yourself why? "Once you put a process in place, even if it’s going great, reevaluate the process, because maybe things have changed and the process could be improved," Deborah suggested. Also remember to focus on both efficiency and effectiveness, because as Deborah pointed out, you could have a really efficient process that’s not effective or a really effective process that’s not that efficient, and there has to be a balance.

 

In the end, process flexibility boils down to building a culture where people are encouraged to question assumptions, and providing venues for open exchanges of ideas and diverse viewpoints.

 

 

 

 

 

 

 

About Deborah Mills-Scofield:

LinkedIn Profile

deb-small.JPG

 

Deborah Mills-Scofield has her own consultancy helping organizations create and implement highly actionable, measurable, and profitable strategic deb pictureplans and cultures to foster innovation. She also is a Partner with Glengary LLC, an early-stage Venture Capital firm in Cleveland, Ohio.

 

 

Deborah has over 20 years of experience in strategic planning and implementation with various manufacturing, service and high-technology companies ranging from multinationals, mid-sized, early-stage, publicly and privately-held. She has also been involved in several start-ups, including her own. In the spirit of Open Innovation and Collaboration, Deb is a co-creator of the recently released book Business Model Generation.

 

 

Deborah started at AT&T Bell Lab, holding a patent for an integrated multimedia messaging service developed in the early 1980s. She was instrumental in getting AT&T to recognize and embrace the Internet's impact, working with AT&T's senior executive team to create AT&T's entrée into that new market. Deb spearheaded AT&T Internet and E-commerce strategies, business plans and execution, including an AT&T “Carve-Out Startup” known as AT&T WorldNet® Services and is formerly Director of Internet Public Policy at AT&T

 

Summary

 

I interviewed Newton Paskin, Chief Operations Officer at Liti and President at Explorer Consulting, to hear his views on supply chain risk and innovation. Newton believes the supply chain has been extremely distorted from a cultural as well as theoretical standpoint. Try to create processes of transformation, manufacturing, and production so that you actually produce sub-assemblies or modular components in which you can deal with long lead times in a different way. It’s actually breaking down the complexity, and is a combination of both sales and operations transformation. The facts of risks are not only related to the specific economic situations that are quite dire, but also because we have a huge change in management being required, breaking usual processes and behaviors in the operational world.

 

 

Adapting Supply Chain to Actual Sell-Through

 

 

Risk is definitely increasing because uncertainty is increasing tenfold, much faster than in the past. Newton thinks that about 3 to 5 years ago there was always a hope in which you could, ‘stuff’ the channel or send products to the channel that they will someway, somehow find a way to get sold. Nowadays it’s not being sold. Therefore, if you actually ship product with the concept of what we call ‘sell in’ versus what is the actual ‘sell through’ rate, you will be in deep trouble very soon since those products will come back to you. As a result you will have problems of returns, recognition of revenue, excessive inventory, etc.

 

 

Therefore, the risk in the way you have to address the risk is number one. You have to adapt your supply chain to the actual sell through. This is something that the overall industry, both consumer goods, consumer electronics, and in general, even in the CPG arena are still having some problems with because the culture has been ‘I wanna have X weeks of inventory in my point of sale, in my distribution hub,’ and you keep adding all of this (inventory). The supply chain has been extremely distorted from a cultural as well as theoretical standpoint. So the facts of risks are not only related to the specific economic situations that are quite dire, but also because we have a huge change in management being required, breaking usual processes and behaviors in the operational world. So definitely, I’m seeing a lot of risk.

 

 

Applying Innovative Solutions

 

 

Newton defines risk in two big buckets. Bucket number one is what he calls the channel partners, the actual sell through piece of it. The second piece is how you create a supply chain. By supply chain he defines all the processes from core raw materials to the transformation processes of components, to the transformation processes of your product, to the fulfillment of the deliverables to the channel and users.

 

Supply chain is how you create a flexible modular process so that you can spare and split the risk instead of, as an example, if you have a 12 weeks’ lead time and you always have to deal with 12 weeks, how can you reduce and break down those 12 weeks’ lead time into manageable components?  So you actually have to peel the onions and say, ‘Okay, what actually makes my problem 12 weeks?’ and start dealing with only that piece and not the overall project. Try to create processes of transformation, manufacturing, and production so that you actually produce subassemblies or modular components in which you can deal with those lead times in a different way instead of actually trying to create an overall solution for a full product. Therefore, it’s actually breaking down the complexity, and is a combination of both buckets.

 

 

Newton and his team created all those processes that actually dealt with the worst lead time between 14 and 12 weeks on specific chip components and boards. However, they also have reduced the components that were 6 weeks or 5 weeks or 4 weeks to only enter the supply chain whenever they were required. Otherwise, you would carry the processes and continue the processes, taking the risk out only for the longer lead time components.

 

At the same time that this was done, they also created a ‘modular MRP.’ Traditionally, you have a bill of materials, and when you run your MRP, the MRP will run as a full component. They would start ordering products based upon lead time. The team actually created modular subassemblies, and combined those subassemblies both in time and location. It was almost as if you split a product in five sub-products, dealing with them independently, and strategically looking at location and time, saying… ‘Okay, how can I combine this in my final product?’

 

Also, as a subset of this, they actually designed in the capability to configure a product with long lead time items. Those long lead-time items, as much possible, were core products across the family of final products. Therefore, you reduce the risk of building inventory that will not be sold, because what you have at a board level, you also have at a component level. You are not putting any value in or transforming that piece in which you are increasing your risk as you move forward in the transformation process. Newton’s team changed the design to incorporate what they called the modular design and reduced risk with buildups that would be common across the platform of products.

 

 

Ship According to Customer Needs

 

In addition to the changes to the operational piece, they also changed the front-end with channel partners. The team implemented collaborative demand planning all based on sell through. They used technology to actually collect data about their customers’ channels and stores. They collected on a weekly basis, sometimes daily basis—some customers allowed them to have daily data—that actually had the sell through at the point of sale. The same thing was done at the different points of distribution. Some customers had 2 layers of distribution hubs, such as 2 centralized for the U.S., and then those two break down into ten regional, and then they ship to stores.

 

 

Newtons’ team also had the sell through at the warehouse or hub level. This prevented the replenishing or planning of production to the consumption at the warehouse level because of their MRP. However, they were not able to change their forecasting and their demand planning assumptions.

 

Most of their customers until today were inflating their demand planning tremendously, basically ordering 12 to 15weeks ahead of their requirements. On the sales operations side Newton had to confront them with the numbers that were generated by their own system based upon sell through and say, ‘No, we don’t deliver; you don’t need products.’ That piece was actually the most difficult part of implementation because they had to create a ‘reverse business development psychology’ to actually control the products being shipped to customers according to their needs, not according to their perceived demand planning needs.

 

 

Additional Barriers to Progress

 

 

What the team still needs is more automation of those processes. Unfortunately, when you go to the traditional demand planning tools, to the traditional MRP tools, to the traditional PLM tools—product life cycle management—they are not integrated. You actually have to do a lot of manual work to incorporate this concept of modular treatment. There is also a huge change management challenge on the traditional thinking process of buyer planners, procurement managers and purchasing managers. They are still attached to volume-based pricing, rather than overall relationship volume.

 

At the same time that you have a technology barrier, you also have a huge change management challenge from a behavioral standpoint. Yet, there are some companies and there are some people pushing the envelope trying to take the fat or the excess out of the supply chain.  If you try to do the ‘traditional way,’ you cannot push the risk out of supply chain and basically push to your supply and say, ‘Oh, you go deal with it, but this is the way you’re gonna ship to me.’ That’s basically artificial because the risk will be embedded on the price, so you’re actually not dealing with the issue; you’re just pushing down the supply chain, and it will come back to you as price increases or less customer satisfaction or erratic performance. What Newton tries to do is actually attack the root cause from both ends -- from an end-user marketplace standpoint, as well as from the supply chain, and try to find a common ground in which you actually can deal with the risk in a way that’s satisfactory for everybody.

 

 

Thought Leadership

 

Newton believes in listening to the customer and designing the processes that actually aim to satisfy those requirements. Look at the tendency in the requirements of that marketplace as a whole, and design appropriate processes to deal with the root cause of the problems, not what the perceived issues you, individually as a manager or you as a company, might think you have.

 

Newton thinks the most difficult part—as well as most innovative—is how to forget for a moment your own problems and your own limitations as an individual as well as a company and try to address the problem and then go try to bridge the gap. This is probably the most pushing-the-envelope type of innovation that Newton is personally trying to do because that’s when transformation will take place.

 

Most importantly: look at the problem from the perspective of your customer and how you satisfy those customers and how can you add value on a constant basis on the relationship between you and your end-user customer. If you keep creating value all the time, at the same that you are actually dealing with your own limitations, you will increase your margin, reduce your costs, and will keep your customer satisfied. It’s not only squeezing margins, because that is very short-lived. You have to create value that you can keep exploring so that you have enough margin to keep innovating. In order to innovate, you have to make margins; otherwise, it’s impossible.

 

 

About Newton Paskin

 

Chief Operations Officer at Liti and President at Explorer Consulting

LinkedIn Profile: http://www.linkedin.com/pub/newton-paskin/0/696/879

Newton Paskinsmall.jpg

 

Newton Paskin’s role has always been on the operational side, being the head of operations, business operations, sometimes involving business development because when you are in contract manufacturing, most of your customers want to talk to whomever is delivering the products, not to mark

eting or sales. Newton has always been in the operations/business development from a strategic standpoint and has been president, CEO as well as senior and executive VP of operations.

 

Over 28 years experience implementing and managing business and customer operations supporting Hardware OEMs (such as; IBM, Compaq, DELL, HP, Apple, Cisco, Seagate, Netgear, Foundry, Meru Networks, Motorola and Phillips among others), Software (Microsoft, Adobe, SEGA), Consumer Electronics (Sony, Bose, Handspring, Seiko Instruments), Medical Devices (LifeScan, J&J, 3M), Defense (Army) and Consumer Goods.