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2014

I interviewed Evita Chatzistavrou who discussed her ebook on Globalization.

 

 

 

 

 

 

It’s nice to speak with you today, Evita, and today I’m looking forward to hearing your views on your e-book that you wrote about globalization. Before we start, can you give a brief background of yourself?

 

Thank you so much. It was really nice to meet you on LinkedIn. I think LinkedIn is the best tool for us to promote our ideas and our work. My name is Evita Chatzistavrou. I live in Athens, Greece, and I work as a multinational executive in several multinational companies here in Greece mostly. I graduated from the only university in Athens, Greece, which is the first university at Greece regarding political sciences. I was very happy to study what I love still today. International relations was my major. I get also my bachelor’s and my master’s of arts degrees from Panteion University. I studied for about six years in total. I am a researcher regarding globalization for about three years.

 

This is the topic I was interested in mostly during my studies because I think we are lucky enough to be participants not only now but in the future and also during our professional lives. I can speak two languages and I’m an author and an article writer. I’m trying to promote and also to make people aware of it because we are active members and participants of this phenomenon, and I think we must study more and see what interesting things we can do regarding this topic.

 

My motto, I think it’s the most important thing for me, is “Local is global and global is local.” This is my motto in my life, and I think I will promote it throughout my life.

 

Can you talk a little bit more about your e-book on globalization, and what is your view on globalization?

 

I think globalization is an important procedure. We have to involve a lot of things not only now but in the future also. I see it as a major phenomenon of the international relations. When I was a researcher at Panteion University here in Greece, I was trying to see all aspects, not only the economic- and business-related aspects but also cultural aspects. This is the most important thing for me. It’s like a puzzle that’s ongoing.

 

People can now travel anywhere, anytime. We can talk to anyone by phones; we can have a Skype interview, just like now. It’s very important to think when all this started and how a lot of things are in the future also. Like saying I have to admit that it is a system of national institutions also. I think it’s very important to know hot topics in the newspapers or in the national magazines, Web sites, or LinkedIn pages. It’s very important to know that not only the big countries are concerned about this and also regional countries, because every regional action can have global importance and global results. Of course, their actions are very careful today because all their actions are interrelated with the major countries and, let’s say, actions.

 

Regional and global are, at the same time, important, and we have to preserve all cultural aspects of this country. We have to preserve all things that are the most important. Of course, we have to think that the globalization is here to stay, and we are active members of it. We may be lucky to live this, or we’re grabbing some bad results. We have to think differently about it and do the best to have the best opportunities and be active members of this at our best exposure.

 

And are there any specific problems that you address in the book?

 

I think there are a lot of challenges. I don’t think that we’d have to see them as a problem. It’s an ongoing phenomenon with a lot of challenges, and we are lucky enough to do something about these challenges. It’s very important to be aware and to spread the issues of globalization. Without to admit that a lot of us are still not concerned about it; they just think it’s just a trend. I don’t think it’s a trend; it’s a very serious phenomenon to care about. Me, as a researcher in international relations, I’m very concerned that we have to respect cultural differences. It’s very important to say this, and I repeat this a lot of times in my book also. It’s very important. I think it’s not only economic- and business-related; it’s also cultural. Everybody can read it in my book. In every aspect of the planet, let’s say, all ideas are very widespread and very fast, not only via Facebook, but also from the smartphones and all this technology that helps us a lot of times. We have to be very careful. International trade is not the only aspect of the coin, let’s say; cultural issues are the other.

 

Do you have any final recommendations?

 

I will call them conclusions based on my research. I think that we must be aware of this phenomenon. A lot of us have not been concerned of the results that we may have in some years. I think that we must think globally and differently. A lot of things will be solved globally.

 

I think that it be good to be prepared for it. We have to think a lot of parallel procedures, let’s say, that we’ll be responsible for this. I’m not thinking that everything will be flat, in a global flat planet, let’s say, but we have to be very concerned for our environment in all aspects. We have to make a lot of changes in our work, and we have to be more technology-friendly.

 

We have to see differently some things. It’s very important for us not only for me as a researcher and as an author, but we have to think that globalization is moving the world. It also has some aspects in supply chain, of course. I work here in Athens, and the next time, the next years I may work outside Greece or I will have to use Facebook and other international means of communication. That would be an everyday life for us, so we have to think it’s a very practical phenomenon; it’s not a thread. I was bored of hearing that it’s a trend and it’s a hot topic and, okay, we will take care of it later. It’s a very serious phenomenon, and that’s why I like this topic, to be a researcher for it. I think that we have to think that all countries now have to think not only globally but their local actions will have global results. This is the most important phrase for me, and I strongly believe it in my book.

 

 

About Evita Chatzistavrou



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Evita Chatzistavrou


MA I.R.S.S, Finance, Shared & Business Services ,

Credit Control,Alfa Laval Greece


LinkedIn Profile

ebook on Globalization

I interviewed Jason Bloomberg who discussed Architecting for Business Agility.

 





Dustin: Nice to speak with you today, Jason, and I’m looking forward today to hearing your topic about architecting for business agility. Can you please start by providing a background of yourself?

 

Jason: Sure. I’m president of Intellyx, my new company focusing on architecting business agility in the enterprise. The idea is that business agility is a core business driver for enterprises around the world that are looking at all of these technology options available to them. Lots of buzzwords out there, lots of confusion, whether it’s cloud, big data, other technologies. What I do is provide an architectural approach for leveraging modern technology in furtherance of business agility. It’s a business problem-driven approach to technology.


Dustin: What is business agility?


Jason: The way I define business agility, basically, there are three parts of the definition. There is responsiveness. You want to be able to respond quickly and efficiently to, essentially, positive changes in the business environment; requests from customers and competitive pressures, et cetera. Resilience, which is responding to adverse events; essentially managing risks of adverse events, whether they are disruptions in the supply chain or security breaches, other adverse events. The most important is innovativeness, helping organizations understand what they need to do in order to innovate better, how they can leverage technology to gain a strategic advantage in their marketplace via introducing change, which is another way of saying innovation.


Dustin: How does this differ from supply chain agility?


Jason: If you’re looking at making a supply chain agile, the focus tends to be on speed and flexibility. You want to get anything, any weight states, anything slowing the supply chain down out of the supply chain in order to accelerate it, and then you want it to be flexible in response to competitive pressures or customer demands, et cetera. Those fall into responsiveness. Responsiveness is an important part of the agility story but doesn’t include the innovativeness part of the story. The challenge here is, well, how somebody, within the context of the supply chain, can understand the broader enterprise context, because there’s more than just the supply chain for the organization. It has to do with what you’re trying to do in order to differentiate yourself, whether it’s your products, your services, or other aspects of differentiation. That’s where innovation focuses. The challenge within the supply chain is to understand the broader enterprise context. Where is the innovation and how can the efficiency and speed of supply chain fit into this broader picture of technology-enabled business agility.


Dustin: Do you have any final recommendations regarding the topic of business agility and regarding supply chains?


Jason: Well, if you look at supply chain technology, supply chain software that’s out there, it tends to be purpose-built. It is built for specific challenges and then specific parts of the supply chain, whether it’s logistics software or retail-management software, whatever the particular part of the supply chain is. You’ll end up with focused software that is purpose-built for those particular challenges. The broader question is: How can we build and then leverage inherently flexible software that can support a broader set of challenges? How do we leverage modularity and reuse in order to build flexible solutions so that when the business comes to us and says, “We want to do new and different things. We want to roll out new products. We want to enter new markets. We want to deal with some sort of new transportation technology,” or some other force of change, how can we leverage our information technology to better meet those needs and to meet them in an efficient way where we don’t have to go back and buy more software or build more custom software every time the business needs something new? That’s the bigger challenge of technology-enabled business agility.


Dustin: Thanks, Jason, for sharing today.


Jason: Happy to help. My Web site is at Intellyx.com. I offer an agile architecture course around the world, so, by all means, come take my course.


Jason Bloomberg

 

LinkedIn Profile

Intellyx

I interviewed Tomasz Kowalski who discussed Supply Chain Project Management.






Dustin: Can you give a brief background of yourself?

 

Tomasz: Of course. Hey, Dustin, a pleasure to talk to you today. I’m Polish; I come from electronic industry. I used to work for Unilever, Flextronics, a couple of other companies; that said, either doing EMS and OEM manufacturing. I’ve gone through around ten years of procurement, supply chain, and project management, together with China, six years’ experience. I have 12 years’ experience within sales and marketing, purchasing, supply chain, and project management. That’s a pretty wide range of responsibilities that I went through during my professional career.

 

Dustin: Do you have a definition or can you talk about specifically what supply chain project management is?

 

Tomasz: Well, before I start that, maybe let’s talk for a moment on project management because, in reality, I believe that project management applies to almost every steer of everybody’s professional and private lives. Speaking of professional lives here in supply chain. Project management is the application of knowledge, tools, methodologies that one uses to achieve certain objectives that should be quantifiable. But to be able to achieve them, we have to first ask ourselves whether we know how to define them and whether we know what these goals are and where our team and resources that we’re using, whether they’re aware of it and whether they will be able to communicate about the progress.

 

Concerning supply chain, I believe that the main function of supply chain is to make sure that your organization is able to react properly to the world requirements and not as change, flexibility. Charles Darwin once said that it’s not actually the stronger species that survives—neither the strongest nor the most intelligent—but actually, the most responsive to change. Here is where I believe project management steps in to supply chain. The application of project management to supply chain allows supply chain to realize how properly react to the change, how implement the change, how plan the risks that are concerning, that are touching this change, because we all know that every change is important. I believe that this is the definition of supply chain project management; the application of project management into methodologies, into the world that’s supposed to be managed by supply chain managers.

 

Dustin: Why is it important?

 

Tomasz: Well, as I already mentioned, following Charles Darwin’s thoughts, to be able to adapt changes, one has to realize that we are, that adapting to those changes is one survived, right? To be able to do this, to be able to adapt to these changes, I believe that supply chain has to realize what the drivers of supply chain are, and here’s where the logic of project management comes in, asking the proper questions. Do we know what these drivers are? Do we know how to define them? Do we know how to control them? How to exit them? How to plan? How to plan for the risks that come out from those supply chain drivers?


That logic about thinking, reasoning, and objectives directly reflects the nature of project management. I mentioned the drivers. Those drivers are, for example, the extended products, a necessity for value adding; globalization; flexibility; process center management; collaboration; and also something which, in project management and supply chain methodologies, is called PESTEL, and it stands for political, economic, social, technological, environmental, and legislative reasoning. Why is it important? Without those drivers, without proper definition, without proper execution and understanding of those drivers, I believe that organizations that base their survival on the supply chain will not be able to survive. Let me give you a very explicit example about globalization. There was an American journalist—I’m not sure whether you know him—Bill Moyers. Have you ever heard of him?

 

Dustin: I’ve heard the name but I’m not too familiar with him.

 

Tomasz: Basically, he had profiled a village of one hundred people that mirrored the global community. Basically, from his research, he summarized it as 57 people would be from Asia; 21 from Europe; 14 from the Western hemisphere, which is basically U.S., North America and South America; and 8 people from Africa. Thirty people out of this one hundred will be Christians; 80, their lives will be substandard, live in substandard houses; 50 will suffer from malnutrition; 20 have never had a drink of clean water; 70 can’t read; 65 have never made a phone call; and so on and so forth. Without proper definition, who are we targeting? In which kind of world are we focusing our efforts on? What kind of goals does supply chain have to meet? Without this prime definition—let’s call it scoping of the supply chain design—every organization will fail. I believe this is why project management enrooted in supply chain is so, so important.

 

Dustin: Can you talk a little bit about how it’s done effectively and where you’ve seen some good results?

 

Tomasz: Of course I can talk about it, but in reality it’s pretty difficult to say how it’s done effectively because every market, every organization is different. Because of this, every organization has to make a proper definition of its own drivers. When those drivers are defined, then there are five tasks as I believe that they’re important for efficient project managing of the supply chain. This is designing supply chain for strategic advantage. This is understanding customers, basically, and sponsors and users.

 

Expectations, they’re placed, whether they’re located in the high or low end or cost-sensitive or not. Segments, scope is also very important to understand over here. What are we planning to achieve designing our supply chain? How you’re supposed to design it, what kind of deliverables have to be met to satisfy those customers? As the example I think here, actually, a very interesting project that I have seen 20 years ago to be established in my country, Poland, which is obviously developing slower than the U.S. because of our post-communist roots. That was the first car-rental company.

 

These guys, the people who came up with the idea, they actually failed because they didn’t realize that Polish people, they simply don’t have driving licenses, so they designed the infrastructure, supply chain for the cars’ transportation from one place to another, the cost, the after-sales services, and they failed to understand that only 10 percent of the whole Polish population would be able to drive. Having said that, they forgot about one important factor: Why wouldn’t they actually connect to a government agency and also allow people to learn how to drive in their cars? Which tends toward another thought: Okay, why don’t we start actually from the driving school instead of car rental since we have all these cars in place already and the infrastructure in place? Understanding customers’ expectations and their capabilities is important and the supply chain has to be designed for whatever is there in the market, for whatever market is.

 

The task number two that I believe is going to make one’s supply chain project management efficient is collaborative relationships. This mentioned company that I’ve just talked about, which failed to establish a car-rental business, they also didn’t answer themselves one question, the second question: Whether they actually want to be oriented on customer, on product, on process, or on their own organization. This kind of organization should be oriented on customer; this is the way that they will be more effective, understanding what customers’ capabilities are.

 

The third task that needs to be in place to have proper supply chain project management executive efficiency is, in my opinion, forging supply chain partnerships. If you start a business and design your supply chain, you have to realize whether you’re alone in the market or not, whether there’s anybody who can help you, help you to expand your infrastructure and help you to become bigger, even if you’re still small. I know that this expression “bigger but still small” doesn’t make any sense in the first moment, but in reality, it does, because in terms of forging supply chain partnerships, there are four types of established plan and controlled partnerships that many of the strategic objectives can be achieved with, and these are such kinds of partnerships like many to many, one to many, many to one, or one to one. Imagine if this company was a company—the car-rental company—was a company that was working only in one small setting with a population of 100,000 people, and I mentioned that only 10 percent of the people have driving licenses; it’s potentially 10,000 customers.

 

But what if they actually merged or partnered with three or four other companies and they’re the same brand name? They would have at the same token access to more customers, to more potential opinions to understand other customers’ objectives. They would be able to change.

 

The fourth point, I believe, is concerning managing supply chain information. Every single organization has got internal challenge of structuring their own processes and information flow. I believe that a couple of, in reality, three modes of information infrastructure have to be mentioned here, and those are: ERP and MRP, material and enterprise resource planning; APS, advanced planning scheduling; and something which, honestly, perhaps does not exist so much in the information management but something I participated in and is quite interesting, it’s workflow information management. Obviously, MRP and ERP and APS, they’re very common. Workflow is something that’s very interesting because it’s a system that is explicitly designed for a certain enterprise, for a certain organization, allowing to eliminate paperwork, allowing to have clear visibility of how processes flow and how many people are involved in these processes and what they do on a daily basis and how many days is required for them to complete their work.This is also something that project management, I would say, guards, is the information flow, the resources that are involved in this, and the time that is involved.

 

The fifth task that I believe may make every organization more efficient in supply chain project management is removing cost for supply chain. Obviously, this is something that every organization strives for, but to be able to do that efficiently, I believe that companies should focus on six points. Again, this is part of the scoping. If we need to focus on removing the cost, we need to know what we have to focus on and why.

 

When your organization doesn’t ask those questions to themselves, this is the moment when they fail because they strive to achieve something which is not commonly understood, which is not designed for success, which is not quantifiable. The first point I would like to mention here in terms of identifying root causes is lack of clarity. If there’s lack of clarity between organization, supply chain project management should facilitate the removing of gray areas because, in reality, you cannot hit the target if you cannot see it. As a consequence of lack of clarity, we also have in many organizations variability of processes, which are just confusing. Expensive product design may be the next point worth mentioning because, in reality, 70 percent of the cost is fixed during this design stage, and it’s supply chain’s prime function to facilitate the knowledge flow so that this knowledge will be injected into product-development processes to mitigate the risk of actually putting the 70 percent of high cost within the * (17:50—unclear).

 

Fourth point: information carrying shortfalls. It is commonly known in the market that the cost is pretty low if the integration of the organization is high. Weak links of the organization and weak links between resources; obviously that refers to a communication organization, IT, infrastructure. There’s also an additional point, which is the sixth, and it’s unintended consequence of, for example, punishment or reward, which is resources management. It’s not only referring to that; it’s widely understood unintended consequences that are not planned, that are not mitigated because there’s no risk plan, because there’s no proper debate. The fourth consequence can change or process establishment or lack of understanding of the goal path. I believe that these four tasks that I just mentioned, they directly refer to organization efficiency in terms of supply chain project management.

 

 

 

Tomasz Kowalski

LinkedIn Profile

I interviewed Fuat A. Kaplan who discussed Lean Manufacturing Insights.

 

 

 

 

 

 

It’s good to speak with you today, Fuat. Today I’d like to learn more about some of your insights regarding some experience and opinions about supply change management. Maybe you can talk a little bit about some of the things you’re doing in your part of the world. Can you start by providing a brief background of yourself?

 

Well, I’m a graduate of Technical University of Istanbul first. This was my undergraduate study. And then I got a scholarship from the Turkish Government to study in Germany, where I did my master’s degree, except for my thesis. For that reason I went to the United States to do rest as a so-called exchange student. I wrote my master’s thesis at New Jersey Institute of Technology, again in manufacturing technology. Back in Germany I got my diploma. Even though I started a company in the United States, it was not so successful as I wished to. In 1995 I returned back to Turkey.

 

I guess you are interested  with more professional side of my background. I’m going through, as I said, just into my professional life: I started with Coca-Cola, Central Asia Operations. I was the Site Manager there, for the installation and  commissioning of bottling machinery. I did two projects;  Azerbaijan and Kazakhstan, the project management of the site and the machinery,  i.e. installation and commissioning of the machinery  and erection of the facilities. This continued until 1997; I left the company in the same year.

 

Then I started, again, a Turkish company operating in Kazakhstan. This time agricultural machinery production. This was my first practical experience in terms of lean manufacturing  since many theoretical topics like factory organization, production planning, ergonomics were the courses during my master’s degree, I mean my specialization . This was a Soviet-Style organization, a very large unit, operating for whole Soviet Union during the Soviet Era. After the collapse of the Union, the company was bought  by a Turkish company in the frame work of Kazakh Government.

 

We tried to reorganize the factory into cost centers and small business units redesigning/regrouping assembly lines and production centers according to different product groups. Also, downsizing the personnel. Production planning included also localizing the  raw materials and semi-finished goods, i.e. creating alternative supply chains. This continued until 1999, since the Turkish Company and the Kazaks Government could not agree on some financial and risk issurance issues. The company dissolved. In 2000 I started with Robert Bosch Germany – Diesel Systems. At that time they started  this Common Rail project, first with magnetic actuation system afterwards piezo effect.

 

This was actually my real start with lean manufacturing experience, in terms of project management, line management, where I was responsible first for a group of machinery; like turning, washing, thermal deburring, 3-D measuring. There we started first choosing the machine concepts, this included also Simultaneous Engineering Team meetings with specialists from various departments within Bosch at manufacturer’s site. During machine build up phase, I executed the project management for whole machinery at various manufacturer’s locatiions. Following the build up we commissioned the machines with pre-and final acceptance studies. After product release by various customers, the serial production started. Parallely  the improvements studies, i.e. kaizen studies started as well. These studies were done until 2003 mostly according to rules of Toyota Production System.

 

By mid 2003 R. Bosch decided starting own production system, called BPS, based mostly on TPS. BPS can be considered in two categories; production system design and production system transformation. Major principles were choosing standard/multi-purpose machinery;  min. lead time; min. stock on RM, WIP, FG; layout design with min. space requirement, i.e. min. human & part movement; multi-machine operation, i.e. min. personnel. Mid 2003 I was project manager for the whole line and the principles implemented much more intensively, since we created the basic foundations of BPS and the real project management at the same time. The cycle was the same as mentioned before, difference was the scope of machinery, i.e. I had to take all the machinery in the line into consideration. Following the principles of BPS in terms of production system design, and product releases by customers (in this respect BMW, Mercedes, Volvo, even Toyota were our customers) serial production (SOP) started. After that the improvement/optimization phase began. Improvement (kaizen) processes had two aspects: one is the capital improvement processes, as cycle-time reduction and setup-time reduction.

 

The other is operational cost reduction, like measures for extending tool life, localizing dies & fixtures, reduction of general consumption materials. I did several projects for both aspects of improvement processes, and reduced investment and operational cost in six digit figures. To undermine maybe is that these improvement projects included also the production system transformation of BPS for the existing lines, according to the same principles. After that I left for an Italian company in 2008, manufacturing parts for appliance & automotive industry. At this position I dealt mostly improving man-hour efficiency, reduction of machine-downtimes and non-quality, i.e. failure cost. I introduced some measures to reduce the downtimes, and rate of failure cost; with the combination of optimized takt-times and initiated bonus system for blue collars, we had drastic changes: Sunday work and 3. shift were eliminated.  Ratio of failure cost to total manufacturing cost was down under 3,2%. We reached a total improvement of 25% in terms of operational cost. Following job with a Turkish company, manufacturing special cables for marine and off-shore applications.

 

They manufactured order based small quantities of specially designed cables mostly for export. It was a company operating basically as a machine shop, i.e. there was no organizational clear division as departments and their job scope. Sales people dominated the activities of whole plant. I started first creating the departments and definition of their job scope in a conventional sense –inserting production planning department as well. Basically the flow of order taking, scheduling, manufacturing and shipping was reorganized and taught to the personnel at every level. What we made there in terms of production system transformation was that a) created flow type lines based on cycle & setup times b) production & material planning c) visual management , 5S and Milk-run to secure the min. handling and  transportation of the WIP and FG d) reduced failure cost by introducing counter measures e) integrated ERP system to plan, analyze and follow all the parameters, including the KPI’s for purchasing, logistics, warehousing, production and production planning.

 

Finally we included also the process improvement projects on certain weak points to increase throughput and reduced machine down times by fundamental TPM applications and worker trainings. We reached again a combined 20% improvement in terms of human & machine efficiency. In 2011 we could not go any further as I wished to in terms of management style with the board, so I left. After that there was no interesting job, say, and I also wanted to listen the suggestions of friends and & associated that I should start consulting. We started with some associated as solution partners since then. Currently I am managing 2 projects, including the inbound & outbound logistics organization of 5 plants and warehouse management, what you see now. Should I go through like this, Dustin, or do you want to ask some special questions?

 

Yes, my final question is: Do you have any recommendations based on what you’ve learned about lean manufacturing?

 

I would say of course, check your product and industry spec’s first,  i.e. lean manufacturing refers mostly to the automotive industry, this fact has to be kept all ways in mind. Since the principles of production system design, as min. lead time; min. stock on RM, WIP, FP; multi-machine operation; min space usage; etc. cannot not be directly transferred to other industries. Special care  has to be taken in terms of very needs of the specific industry. Other than that if possible, from the project phase on, i.e. from the erection of the facilities and choose of the machine concepts, the  production system design rules have to be followed, what mentioned previously.

 

Of course based on the pull system and focus on each process step in the flow, i.e. no parts move further if it does not meet the quality standards. To mention also the visual management and 5S tools must be included to control production. To increase the up-times of the machinery, an effective maintenance has to be carried out, i.e. TPM methods. Milk-run, supermarket concepts, etc. has to be included to optimize the dock-to-dock operations. If some parts are outsourced, the same rules have to carried on to suppliers also in order to practice the JIT or ship-to-line concepts from the inbound supply chain perspective.

 

To speed up and carry out error free the warehouse management systems and transfer of the parts must be done by utilization of bar-code or even better RFID  systems. Outbound supply chain as FG warehouses, palleting, putting into containers and finally shipment must be done again in a proper way in order to realize the tracebility. Of course supplier development and logistics concern like clusters building, outside milk-runs, consolidation centers, cross-dock operations, returnable containers, etc. have to be studied separately in very detail to complete the lean manufacturing operation.

 

What I am trying to say in sum is that we have to plan every thing upfront according to the rules of production system design and execute, and revise until desired level reached.  In case of already existing lines, i.e. production system transformation, capture first the current status and afterwards define future status, i.e the desired status. Again with the guide of the production system design principles, set the priorities and mile stones, define the work packages with responsibles and time table and decisively execute.  Most importand of all these, of course, creating the CIP mindset and keeping it alive. For that reason the training of the personnel and the social & compensation sides of the HR policies have to be implemented very carefully and very detailed.

 

Thank you for sharing today.

 

Thank you, Dustin.

 

 

 

 

About Fuat A. Kaplan



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Fuat A. Kaplan


Lean Manufacturing (Operations Excellence) Consultant

 

LinkedIn Profile

I interviewed Håkan Andersson, Establish Inc. who discussed some of the less talked about but massively important factors to consider when deciding where to locate your DCs for supply chain network optimization. It is not just about cost. Positive factors including service, the benefit to the natural environment and the negative factors such as human behavior which resists change; also play a major role in the decision.

 

Hello, Dustin, thank you very much for having me here today. Today’s topic—where you locate your DCs matter more than you think—is a topic that I think is about the fundamentals in supply chain management.

 

 

The reason is that this is where you have the chance to really make things good and to change things from the bottom up. On a personal note, being a supply chain consultant is a very rewarding job. You get to see a lot, you get to learn a lot, it is very hands-on, and is something that you can understand. When it comes to supply chain or distribution, network optimization, you are providing the structure for making things right from the start instead of just improving what has been laid out before.

 

I’ve done this so many times now, and I know that it does save a lot of money. Typically, we would see cost reductions of somewhere between 10 to 25% That is really great. Normally, when you get new transportation routes, you would save an additional 10 to 15 percent in the negotiation phase with the carriers. You would typically see the cost reductions in transportation, warehousing, and inventory carrying.

 

When it comes to transportation, it’s kind of obvious that what you want to do is to minimize the number of miles that you have to drive and the number of shipments so that you get the most cost-efficient mode and a cost-efficient way of handling it. When it comes to warehousing, you would consolidate into the most efficient-located and the most efficient location salary-wise, incentive-wise, and real estate cost and everything taken into account. If you do this in the correct way, you would get a better service level with a lower inventory. You would have a win-win situation where, per low cost, you would get a better service. All of this is great, and those are the reasons why almost all route companies are doing this.

 

But there are other benefits that, to me personally, are more valuable. They very rarely show up in business cases, and very rarely are they a part of the recent way of doing this, and I think that’s a shame. I would get back to that.

 

The second thing is that when you are doing the network optimization, you have to fight a lot of rational and irrational obstruction and behavior. If we start with the positive side of this, we did establish that you would save a lot of money and reduce cost and you would reduce cost that would directly impact the bottom line, because most of the logistics cost that we’re affecting here are money right out of the company. It’s external invoices that we’re paying or paying less of in the future setup.

 

When I look at the other benefits—environment, the greenhouse emissions, that’s a huge thing, and we all try to do what we can to—ride fuel-efficient cars, hybrids, we would do recycling our stuff—but we know that according to EPA, 27% of all the greenhouse emissions in the U.S.A., they’re coming from transportation. Most of transportation is truck, commercial freight, and that is what we’re dealing with as supply chain logistics experts.

 

If we can set up a structure that minimizes the miles you have to drive the trucks and when the trucks are driving those miles, you can make sure that they are full so they’re not wasting any space and you can make sure that you have the right modes—you’re not flying something that could go on a truck or you’re not trucking anything that can go in water—you have reductions in greenhouse emissions that are far, far greater than what you can do on a personal level. This is something that very few pay attention to, but this is an area where the logisticians are the heroes.

 

We know that if we set up a good and well-balanced distribution structure, we know that the accessibility of the stuff that the customer wants, that goes up, which means that if somebody orders something, we can deliver it, and that has a huge impact on whether the customer will return to you. The way you set it up could also trigger a quicker response and a shorter delivery time.

 

The struggle that you would have is sometimes caused by very rational reasons, like if you’re afraid of losing your job because this is a more efficient structure; that is a very rational thing to be skeptical of and you will resist change. Or if you would have to move because there is another location that’s more attractive from a logistics standpoint; it’s not an easy thing to uproot your kids and family. Then you have the risk of being outsourced. These are things that we need to be very aware of and to take into account and respect.

 

The most frustrating is when you see obstructions for other reasons, like there are personal benefits from very long relationships with carriers or other suppliers or there are established truths—“things have always been handled this way” and “we’ve always been in this location; we can’t change,” or when it’s just down to personal comfort that you’ve been dealing with a company for a hundred years and it’s just easy. I see a lot of this; that’s the darkside of the logistics industry.

 

The way to overcome this is that we try to get people on board that are affected as soon as possible. We also see that younger persons, in general, have a more holistic view on things, and they can see the environmental, the service aspects, and can embrace change in a way that we elders don’t have. And when we have functions outside the supply chain, it also helps a lot.

 

When it comes to picking the locations, there are so many different aspects to it and there are so many different ways of looking at it, which makes it the more interesting if you're into logistics and supply chain.

 

  1. The obvious and most scientific ways to look for is center gravity, which means which location would minimize the number of miles that you have to travel. Typically, if you do that in a consumer industry, you would land somewhere west of Pennsylvania, east of Ohio, that area. When you have two points, you would typically get one in the northeastern U.S. and one DC in California, Texas, somewhere there. And then you add, if you’re going to have three DCs, somewhere in the Midwest, like Chicago. Then comes somewhere southeast—Georgia. And last, northwest, up in Oregon. We call them the Usual Suspect Five.
  2. There are other strategies that you could embrace here, and center gravity often is just a starting point. You could choose to be close to key customers. The most obvious thing here is if you’re in the auto industry, a supplier to the car makers, you want to be close to where they have their plants. Dell has taken that to its extreme that you have to have a DC practically on their premises. If you look at Amazon, they are now attacking the cities and having shorter delivery times to the cities, same-day deliveries; and then you need to have the locations close to the cities.
  3. The third approach here is to go for a low-cost operation, where you pick more rural, high-unemployment areas. You would have lower compensation levels, you would have lower cost for real estate, there would be local county/state incentives to establish your operations there; it could be tax reasons.
  4. The fourth and, I would say, very important strategy would be to establish yourself where you have logistical hubs, and this could either be where the carriers would have—you can see at Memphis Tennessee, Louisville, Kentucky; you would see other places where you have a lot of 3PLs. The reason why we do this is that you would want to be close to a lot of options so that you can change if you’re outsourcing your warehouse.
  5. A strategy that is not used often enough I would say is a place that is attractive for your employees to win the war for talent and get really hotshots to join your company.
  6. Then I would say the last strategy and probably the most used is that you stay close to where you have a production facility. This is a knee jerk reaction and an intuitively right way of doing it. It very often pays off to instead be close to where you have your end customers, because from your production side, you can very often efficient transportation, the first leg and then position yourselves where you can have a quick response to your clients, to your customers, and where you can get good reaction time.

 

I do want to say to finish this up that there is so much more to say about the network optimization, distribution supply chain network both inbound and outbound, but don’t forget that it’s more than a better cost: environmental reasons; the benefits from a service point of view are huge. Thank you very much.

 

About Hakan

 

Establish Inc.

110 Summit Avenue

Montvale, NJ 07645

Phone (201) 283-9000

I interviewed Thom Campbell who discussed Passion for Clients’ Business  in the Service Industry.

 

 

 

 

 

 

It’s nice to speak with you today, Thom, and today I’m looking forward to hearing your views specifically about passion and having a passion for your clients’ business, especially in the service industry. Can you start by providing a background and maybe a short story about yourself?

 

Sure. Thanks, very much, Dustin, and thanks for the opportunity to speak with you. My background prior to going into supply chain and logistics in the past 15 years was in finance. I worked for Morgan Stanley for about 10 years, and I worked on both the investment-banking side and the sales-and-marketing aspect of the business, as well as corporate governance. I had a university classmate, Jeff Keaton, who is a civil engineer, and he and his father have designed warehouses—in his father’s case, since the mid-’60s. Jeff went to business school with our CFO and third partner, and they came up with the idea to start a third-party logistics business, which we did, and it’s called Capacity; it’s at CapacityLLC.com. We offer third-party warehousing and order-fulfillment services, shipping orders to e-commerce consumers, EDI retailers, and anybody else the brands we work with wishes to ship to. We work with beauty, apparel, corporate clients ranging from ADP to Berkshire Hathaway, to tarte cosmetics, Korres Natural Products, Weleda, and some other brands in various categories and verticals.

 

Can you talk about why you believe it’s important to have a passion for your clients’ business in the industry?

 

Well, we tried very hard to create a best-of-breed offering. The things we focused on, naturally, over time are fairly predictable. They’re technology, the people, the structure, and SOPs that you create around a supply chain process and service-oriented business. One of the things we think really does distinguish a great provider from a good provider is that passion for a client’s business, for creating excellence in everything you do, and really, truly caring about your clients’ business, because the amount of control you have over their success, or lack thereof, is unlink almost any other industry.

 

You are literally touching every product before it gets to their customer, whether it’s a retailer or a consumer, so you’re enormously aligned with them. Those brands that we get excited about are extremely passionate about their business. I have worked with George Korres from Korres natural Products for almost 10 years. George is an admirable ambassador for his brand; he just loves the family and the Greek history of pharmacology that he comes out of.

 

The products that they create are truly innovative and truly interesting to their consumers and their retailers. We want to mirror that passion, because if we’re not aligned on the level of an intense commitment to delivering something that’s really excellent and really different, we’re not going to be easy to distinguish from our competitors. There are a lot of people in our space doing what we do, and it’s a very fragmented industry and it’s difficult to distinguish yourself, because a lot of people really compete on price, they compete by having a lot of square feet, a lot of people, a lot of assets. That isn’t our business model. We’re really interested in a non-asset-based value-added offering in which we can touch product at whatever level of detail after the manufacturing stage to rework it for new channels, to repurpose it for anything from HSN to QVC to create gift presentations, to create sets, to create assortments, to do anything you need to do to your product once it’s in your warehouse so that you can help your business succeed.

 

How did you develop your passion?

 

It was a little bit inadvertent to be honest with you. I was not passionate about the capital markets. I am not ashamed to admit that I enjoyed my time in finance very much and I learned a great deal, but I’ve learned a lot more owning and operating a business. One of the reasons that I was attracted to supply chain is that I had been in what I like to call the method business of finance; you’re operating at a fairly abstract level. I found that the things that I liked about finance the most were the relationships; either the relationships with really sophisticated institutional buyers like Yale University or Harvard, or individuals who had come up in the Louisiana oil fields and made their fortune or had sold a waste-carting business on Staten Island and made their fortune that way. I really like the people. I thought that aspect of finance was the most compelling to me, and the stories behind those people’s success are really what excited me.

 

In supply chain, I saw a way to get closer to some of those stories and to actually become part of the story. I think that it’s very difficult to get passionate about something that’s abstract; maybe if you’re a high-end mathematician or physicist, you can do that, but I am not such a professional. I’m much more engaged by and with people, so finding people who had product that they wanted to get to market or to their companies is something that has really created that passion over time. It’s not something that you just spontaneously combust, and all of a sudden, you’re afire with passion; it’s more something that you have to learn about yourself over time.

 

What I came away from my career in finance thinking was, as long as I can engage with people whom I genuinely want to work with and with whom I share a set of values, I can do just about anything and enjoy it. I don’t think that supply chain is just about anything; I think it appeals to a very data-focused, kinda geeky subset. But once you figure out it’s you, it is a very compelling platform for exploring relationships with people.

 

Do you have any recommendations?

 

Do you mean recommendations for other professionals trying to find the proverbial passion?

 

Yes, maybe specifically within the supply chain, supply chain professionals.

 

Sure. If you already know that you’re in that unique subset of professionals that is supply chain-focused, I think you’re well on your way. Most of the supply chain professionals I know are really passionate. I used to have employees at Morgan who would move to other firms for what I considered relatively small incremental financial benefit. I have seen people in supply chain who stick with a company they really believe in for 10, 15 years.

 

There’s an incredible dedication to it. If you have already got that you’re on your way. If you are interested in figuring out what your passion is, I think you need to get exposure to as many different areas of supply chain as possible. There are a lot of high-value-added opportunities, and there are a lot of fields that are viewed as more commodity offering.

 

For example, freight forwarding is viewed as a bit of a commodity offering, but, in fact, it’s incredibly value-added. If you cannot develop really strong relationships with your customers and your carriers and, most importantly, execute, you’re going to have a very hard time differentiating yourself. Discovering your niche in any industry is really critical. If you’re looking for a niche in supply chain, I think you want to look at the broadest possible range of activities from X works or postmanufacturing all the way to the point of delivery to the customer, and think carefully about what aspect of all of that appeals to you most.

 

For example, I used the example earlier in finance. One of the things I really liked in finance was working with private clients or smaller institutions because they had a little bit more personality. Some people I knew really enjoyed working with the large institutions; they liked the big numbers, they liked the big deals; that are what got them up in the morning and fed their passion. I think it’s just important to get the exposure to the different sides of the business and the different legs of transportation for manufacturing to customer so that you can figure out where your passion lies.

 

Thanks, Thom, for sharing your views today on both supply chain professionals, how they can find and develop their passions, and also, your story, your passion for your clients’ businesses.

 

Thank you very much, Dustin, I really appreciate the opportunity.

 

Thank you.


 

About Thomas Eldridge Campbell



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Thomas Eldridge Campbell


Chief Strategy Officer,

Founder,

Capacity LLC

 

LinkedIn Profile

I interviewed Francis Cherian who discussed Value Creation: Procurement's Role in Supply Chains.

 

 

 

 

 

 

Please provide a brief background of yourself?

 

My name is Francis Cherian and I am a co-founder of Innovatus based in Kuala Lumpur, Malaysia. Innovatus is a procurement consulting and industrial supply company active in Europe and Asia since 2009. Prior to this, I held procurement leadership positions at Fortune 500 companies in the pharmaceutical, consumer goods, medical devices, and oil and gas industries. I also share my skills and experience in Strategic Sourcing & Supply Management as adjunct faculty at the Georgia Institute of Technology.

 

What is Value Creation and what is Procurement's role in this?

 

There is no standard definition of the term “Value Creation”. However for the purpose of our discussion, I would define it as the process of utilizing inputs from business activities and interactions to produce outputs and outcomes that, over the short, medium andlong term, create business value for the organization, its stakeholders, society and the environment. The Procurement function has a significant role in the value creation process as it “de facto” touches on many different areas of an organization’s Value Chain such as research and development, product/service development, production, marketing and sales as well as distribution. Additionally, the Procurement function is uniquely placed between the buyer and the seller of products and services which enables value and/or synergies to be unlocked through collaborative efforts.

 

How does Procurement provide value in the supply chain?

 

Traditionally , the value that the Procurement function created was focused on more operational and tactical activities such as ensuring product/service delivery was on time as well as ensuring that the right quality/specifications was procured at the right total cost from an approved supplier. Additionally, the Procurement function also focused on reducing working capital through various programs and initiatives. These activities created value by ensuring that supply chains were cost effective and reliable.

 

Today, the Procurement function has evolved into a more strategic function that is capable of delivering significant value along the supply chain. For example, through Procurement’s involvement in the product development/ideation process; the function is perfectly positioned to harness the innovative capabilities of its supply base thus contributing to increased sales as a result of faster speed to market and increased customer value.

 

Similarly, the Procurement function is also able to create value through global sourcing activity which enables an organization to explore not just the cost benefits of procurement from lower cost countries but also to understand the potential market for its own products as well as to create distribution networks in emerging markets which may lead to sales growth in the mid-term.

 

Another good example is how Procurement is able to influence its key suppliers to comply with its Corporate Social Responsibility (CSR) policy through its involvement in the supplier selection and approval process. By actively managing its supplier relationships in relation to its CSR policy, Procurement is able to increase its brand equity and reputation which is increasingly demanded by today’s customer/consumer; and which is crucial for an organization’s long term success.

 

Where have you seen success?

 

That’s a great question! I have seen a wide range of success achieved across the value chain especially in product innovationas well as in manufacturing and distribution efficiencies. In my opinion, the level of success achieved by companies varies very much by industry and organizational maturity. However, there are 3key success factors that are common to all organizations:

 

i) Alignment with key business objectives.  I have found that Procurement organizations that align themselves closely to key business objectives as opposed to having its own “Procurement Agenda” typically create more value for the organization as a whole. It is imperative that the Procurement function is seen as being fully integrated in achieving key business objectives. This may be achieved through the creation of procurement organizational structures that are specific to a given value chain, and may indeed be influenced by the nature of products and services purchased, the  supplier base as well as internal stakeholder management. Clearly, a “one size fits all” Procurement organization structure would not be suitable in most companies.

 

ii) Talented Procurement Resources.With the focus on value creation, procurement professionals would require a wider range of business skills. Although traditional procurement skills are still very relevant, there is a need for procurement professionals to possess more expertise in strategy, marketing, operations and finance as they seek to spread their influence across the organization. In addition, sound communication and relationship building skills are also crucial for success. Therefore, it is necessary for organizations to have a strategy to hire and retain the right procurement talent moving forward.

 

Measurement of Performance.

 

We talked about how Value Creation can be achieved through many different methods across the organization. However, in many organizations there is still a very strong focus on cost savings. Don’t get me wrong, cost savings is still very important but it is not the only lever in achieving value creation. In my opinion, it is important for the Procurement organization to have performance measures that reflect key business objectives (e.g product/service development and launch, market growth, profitability, branding  etc.) which in turn ensures the Procurement function delivers maximum value to the corporation.

 

 

About Francis Cherian



Cherian.png

Francis Cherian

 

Global Purchasing and Supply Management Executive

 

LinkedIn Profile

I interviewed Marv Patterson who discussed How Innovation Investment Drives Financial Success in a Business.

 

 

 

 

 

 

Well, it’s nice to speak with you today, Marv.  I’m looking forward to discussing and seeing your presentation on the topic of how innovation investment drives financial success in a business. Could you start by providing a brief background of yourself?

 

I’m happy to be here. Thanks for inviting me to talk today. As for my background, I started out as an electronic engineer and worked up through project management levels.  I joined Hewlett-Packard in 1973, and was with that company for 20 years.  Essentially all of that time was in R&D at one level or another.  I eventually ended up in Palo Alto as the director of a group at HP headquarters called Corporate Engineering.  We transformed this group into an internal consulting service that was responsible for improving HP’s R&D performance worldwide.

 

We were fairly successfully at that for a few years so I decided to show HP’s executives how much we had impacted the company’s bottom line through our efforts. I sent some people out to get the numbers and, when they reported in, we got a rather nasty surprise.  Some business units we had helped improve were, indeed, doing better.  But others, where we had made even more substantial improvements, were doing no better at all.  We couldn’t show any overall improvement in HP’s bottom line.  In fact, there seemed to be no correlation at all between R&D performance and financial success.

 

When we investigated further we found that a business unit’s financial performance seemed to depend more on the level and quality of interaction the local executive team had with their new product program.  Some did really well at this, and others hardly paid any attention at all to new product efforts.  In these business units, that job was generally considered the responsibility of the R&D manager.

 

These differences in performance seemed to depend upon the backgrounds of the executive leaders, their professional education and experience. Further investigation revealed that, in HP’s rather extensive executive training curriculum, no time at all was spent on this key question, “Howshould executives manage their investments in new product innovation to best achieve financial growth?”

 

When we reported these discoveries to HP’s executive staff, their response was almost predictable, “Marv, no one else is working on this issue.  Why don’t you take it on?”  We launched an effort to address this issue, but I left HP a short time later to start my own consulting company and lost track of HP’s work in this area.

 

This question seemed to be central to the success of my own consulting efforts, though, so I continued to pursue it after I left HP, and it ultimately led to development of the Patterson-Hartmann (P-H) model.  The P-H model is an essential part of that package of information that you would like every executive, and every leader of innovation at any level to know.

 

I enjoyed pretty good success with my consulting company, Innovation Resultant International, for 13 years and then closed it down in 2006, thinking that I was going to retire.  What actually happened, though, was that I immediately launched into writing my 3rd book on how to manage innovation.  That has carried me on into my current career.  Among other things right now, I am teaching a course called “Managing Innovation” at Stanford, and using this 3rd book as the text.

 

This is interesting. Can you talk more about what is the Patterson-Hartmann Model?

 

I have a few slides that will help describe the model, but first let me say it verbally.  It’s a description of the generic system that links investments in innovation to the financial performance in a business. Before I go further I should mention that the “Hartmann” in the P-H Model is George Hartmann, a mathematician at Xerox, now retired.  George and I met when my company was helping with the Xerox Corporation’s new product efforts.  The two of us put together this mathematical model over several years in a series of papers on the subject.  It became known in the literature as the “Patterson-Hartmann model.”

 

The Model defines the principles and quantitative relationships that govern the performance of the generic innovation system.  It also includes key qualitative performance drivers that are essential to the system’s success.  Another important aspect of the model, though, is that it is realistic, and aligns well with innovation practices and circumstances that have proven effective in actual practice.  My 20 years with HP and the 13 years working with other companies since then have all helped shape and tune the model.  The model describes very well the conditions, both good and bad, that I witnessed and experienced during those years.

 

This is the generic system I talked about.  It consists of a positive feedback loop up above, and the executive leadership down below that establishes the feedback loop and keeps it moving in the right direction.

 

The system description starts with Customers.  The purpose of every activity and individual at work in the feedback loop is to offer Customerssuch terrific value that they simply can’t resist.  The objective is to induce them to rip their wallets out and send you money in the mail which, of course, creates the revenue stream at the top.

 

This is a generic representation so any business that wants to apply these principles must figure outhowits own business modelfits into this generic system.  In some business models, for instance, the people who use a product or service are different from the Customers who evaluate and pay for it.  In these businesses you need to show the users separately, and understand both customer and user needs along the relevant relationships that exist between these two categories of people.

 

The second element in the system is Operations which includes all of the functions that are required to deliver value to Customers.  In a typical manufacturing firm, for instance, this would be Sales, Manufacturing and Customer Support, and maybe some others.  The objective of this element is to take information about new products and services from the Innovation Engine, and transform it into delivered value.

The third element is the innovation engine.  At this point, most people will automatically think, “Oh yeah, that’s the R&D department.”  But it’s a lot more than that.  As we will see later, innovation of new products or services is an inherently cross-functional effort, and will involve marketing people, business development folks, and even people working in Operations.

 

When these elements work well, value is delivered and the revenue stream at the top is created.  It flows back and funds operational activities, other expenses and taxes.  It also provides ongoing funding for innovation investments which closes the feedback loop.  What’s left at the extreme left is Net Income, a key driver of the firm’s cash flow and shareholder value.

 

The Executive Leadership team includes those people who have span of control over all of the personnel and other resources critical to the feedback loop elements.  In a typical business unit, this might include the business unit general manager, and the managers in charge of R&D, marketing, sales, manufacturing and customer support.  As we shall see below, this team has a number of key roles to play in assuring the success of feedback loop activities.

 

Now we’ll briefly describe operation of the feedback loop and identify three quantitative growth drivers that determine annual revenue growth rate.  The vertical axis in this chart is financial; revenue above the horizontal axis, and innovation investment below.  The scale of the negative axis has been adjusted to magnify the size of investment waves by 10x. Otherwise they would be too small to see.

 

In 1998 a first wave of innovation investment occurs and, in this example, it causes a first revenue wave that begins in 2001, the same year that the investment wave ends.  The red arrows in the feedback loop denote where these waves occur in the system.  The first performance driver, Innovation Gain, is simply the ratio of the revenue wave magnitude to the total investment that was required to create it. In other words, Innovation Gain is the number of dollars of new revenue that is created by each dollar invested in innovation.

 

The next chart shows the effect of introducing new investment waves in each subsequent fiscal year out to 2007.  Each new investment wave is larger than the preceding one by a constant percentage, and creates a new revenue wave that begins in the year the investment wave ends.  Innovation Gain is unchanged throughout. After a startup phase,annual revenues grow at a constant exponential rate.

 

In particular,note the nature of annual revenue and innovation investment in 2004 through 2007, the years where performance is completely stable.  Total revenues for each year include contributions from products that were introduced in the current year, and in the preceding four years.  Total innovation investment includes majorexpenditures for development of new products that will be introduced in the current year.  Also included, though, are expenditures that fund innovation efforts for products that will be introduced over the next three years.

 

This chart format, known as a “Revenue Vintage Chart,” not only shows annual performance, it makes visible cause-and-effect relationships that span many years in a firm’s history.  Early strategic efforts in the beginning of the black investment wave that starts in 2005, for instance, can be seen to affect the firm’s future at least until 2012 when the corresponding black revenue wave finally comes to an end.

A second quantitative growth driver can be defined using this chart.  Innovation Intensity is the ratio of total investments in innovation in any given year to the total revenues received in that same year.

 

One final quantitative performance factor is needed to establish annual revenue growth rate performance, and that is the effective time delay between an innovation investment and the revenue that it creates.

 

The P-H Model provides a way of determining a lump-sum investment that has the same mathematical impact as the distributed investment waveform.  The total number of dollars involved is, of course, the same but the timing of the equivalent investment needs to be properly placed to achieve an equivalent effect.  Likewise, a lump-sum equivalent for the revenue payback can be determined.  The time interval in between is the Turn Time, the effective delay between an innovation investment and the revenue that it creates. Methods for calculating or approximating Turn Time are provided in more detailed explanations of the P-H Model.

 

The relationships of these three growth drivers are shown in this next chart.  The vertical axis is annual revenue growth rate, g, expressed as a fraction.  The x-axis is the product of Innovation Gain time Innovation Intensity.  The curves on the chart show growth rate performance for various values of Turn Time, expressed in years.

 

In the example shown on the chart, Innovation Gain is 12.5 - $12.5 of revenue created by each dollar invested – and Innovation Intensity is 0.12 (12% of revenueis invested in innovation).  The product of these two is 1.5 which becomes the x-axis value of the feedback loop operating point.  Turn Time is 2.02 years which places the operating point almost exactly on the Turn Time = 2 years curve, with just a small offset toward the 3 year curve.  The y-axis value of that operating point is the annual revenue growth rate, and is equal to 0.2225 (22.25%).

The P-H Model revenue growth chart provides the means for quantitative analysis in support of higher quality management decisions. In this case, for instance, if I need to know the effect of a one-year increase in the development cycle, I can just move straight down to the 3 year Turn Time curve and read the new growth rate. The delay will reduce growth rate by almost 10%.  On the other hand, if either Innovation Gain or Innovation Intensity decrease, the operating point for the loop will slide down the Turn-Time = 2.02 curve to a new, lower value on the x-axis, where the reduction in growth rate is readily apparent.

 

Here is a fairly good example of the sort of work that goes on inside the innovation engine. As I mentioned earlier, it involves a lot more than just the R&D department.  Opportunity discovery, for instance should address both markets and technologies, and this will involve market researchers, business development people and R&D folks.  Strategy creation and product concept validation will involve a similar cross-functional team.  Ideally, product development and introduction will involvenot only R&D and marketing personnel, but will also integrate the firm’s operational wisdom gained from experience.

 

A couple of general observations are worth noting at this juncture.  The strategic front-end work in the Innovation Engine is costs relatively little, and yet it has by far the greatest influence on Innovation Gain performance; especially on the size of future revenue waveforms.  Firms wanting to improve innovation performance often get the greatest bang per buck by focusing in this area.  In contrast, the technology and product development work in later stages of innovation consume the Lion’s share of innovation investments, and have an overwhelming influence on Turn Time.  In particular, delays introduced by design flaws or changing product definitions are highly detrimental to Turn Time performance.  In addition, though, theydramatically increase the size of investments needed to get the product out and thereby reduce Innovation Gain performance as well.

 

Executive Leaders have several crucial roles to play in managing Innovation Engine performance. First of all, they guide and inspire opportunity discovery and strategy creation.  They set the strategic intent of the enterprise that helps set the direction of opportunity discovery efforts and keeps them focused on the right questions.  They guide strategy creation efforts, and set high expectations for the results that emerge. They track and monitor technology and product development activities, and see that each team has an abundance of the needed skills.  Overall, they keep the Innovation engine in balance; between strategic and development work, between marketing and engineering, and between short term and long term goals.

 

In addition to the three quantitative growth drivers, there are qualitative factors as well that control innovation performance.  These influence the behavior of the individuals and teams at work throughout the innovation system.  In particular, though, the level of creativity and initiative of innovation professionals working within the Innovation Engine are affected.  These three qualitative growth drivers are illustrated in this diagram.

 

The first is the level of involvement of individuals with their work assignment.  This ranges from a high level, where they are enthusiastic and passionately strive to succeed, to the lowest level, where they are detached from and perhaps even cynical about their assignment.

The second factor is each innovation professional’s feelings of effectiveness at work.  At its highest level, individuals feel fully effective in everything they do.  When they leave for home they are completely happy with what they’ve accomplished, take pride in the progress that was made that day, and know that they are a valued member of the team.  They know that, if they continue to perform at this level, appropriate recognition and reward will follow.  At its lowest level, individuals feel completely ineffective.  Nothing they do seems to make any difference to the success or wellbeing of the enterprise.  In fact, due to various circumstances, much of the work they do may even be discarded or redone.

 

The third factor is the energy level of each innovation professional.  At its highest level, individuals work hard at assigned objectives all day but never seem to become depleted.  They always show up the next day ready to do it all over again.  At its lowest level, most individuals are completely exhausted. Job pressures demand that they work extensive overtime and, it seems like the harder they work, the further behind they get.  Since weekends are consumed with work there is no time to recover.

 

When all three of these factors are at their lowest levels, individuals are working in the lower left corner of the cube and are clinically burned out.  At the upper right corner of the cube, where all three factors are at their highest levels, individuals are fully engaged at work, and able to deliver their best possible results.  Burnout is impossible under these circumstances, and the enterprise is able to operate at “Best of Breed” levels.

 

Once again, Executive Leaders play crucial roles in determining where in this cubical space their innovation professionals are likely to operate each day.  They establish the ground rules that determine the nature of work assignments, and the degree of professional freedom and responsibility that individuals experience.  They set the workloads for individuals by how they staff project teams, and by the number and intensity of innovation programs they have underway in the innovation system at any given time.  A skill set essential to effective innovation leadershipis learning how to read the signs related to employee level of engagement, and then knowing how to manage the innovation system in ways that nudge people toward the Fully Engaged corner of the space.

 

How is the P-H Model Useful?

 

It creates a comprehensive intellectual framework for improving innovation performance.  What I mean by “comprehensive” is that it spans the whole range of important aspects of product innovation in business – the strategic, the engineering, the motivation and morale of employees, and the financial impact of their work.  Above all, it included the executives as part of the system.  My experience as a consultant was that, in many companies, executive leaders really didn’t see themselves as part of the innovation activity.  They felt that was the domain of the R&D manager.  I think that’s true even today.

 

This model highlights common gaps in innovation performance, and their root causes.  It provides quantitative and qualitative principles that improve decision quality.

 

I think one of the most important things that the P-H Model does is provide innovation leaders with kind of a “periscope” that allows them to see beyond their inherent learning horizons.  I think it was Peter Senge that taught us about learning horizons. If something happens geographically too far away, or too far in the future, we can’t discern cause and effect. It breaks that learning loop that enables us to learn from experience.  This model gives people a perspective and some mental models that allow them to see over those horizons.

 

How can this model be used effectively?

 

The most effective way we have been able to apply this knowledgeis to engage our client companies at the executive level, and convince them that this material offers a worthwhile learning experience for their organization. We propose an executive seminar at a very reasonable price that will include not only the executives but mid-level managers and key individual contributors as well.  All of the leaders involved in innovation efforts are invited to attend.  In a more elaborate version of this event, we conduct workshops at key points during the seminar where attendees can immediately begin to discuss what they have just learned, and apply it to their own performance issues.

 

This seminar – workshop version provides anrich environment in which an innovation team can not only learn new innovation principles, but also discover the “low hanging fruit” that exists in their own operation.  These are the opportunities that are not that difficult or expensive to take on, but that can make a tremendous difference in overall innovation performance.  The elements of the model work to show people how things should work.  This highlights the gaps in their own performance, and points to ways in which problems can be easily corrected.

 

Well, thank you, Marv, for sharing on this topic.  Did you cover all of the points you wanted to make?

 

Yes and, in fact, I’m sure I have probably talked too long, and we’ll have to edit this down a bit.

 

 

 

About Marv Patterson


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Marv Patterson

 

President, Dileab Group

 

LinkedIn Profile

I interviewed Paulo Luiz Moritte who discussed Client Satisfaction in Purchasing.

 

 

 

 

 

 

Please provide a brief background of yourself?

 

I worked 35 years at Dow Chemical in different areaslike: Manufacturing, R&D, Sales, Marketing, Finance, Strategic Planning, e-Business and the last 12 years in Purchasing.  Since 2012 I have a consultant company (PM2Consult) with focus in Purchasing, and also I’m Sr. Consultant at Vantage Partners.

 

What do you mean by client satisfaction in purchasing?

 

In Sales and Marketing, companies use Customer Satisfaction Surveys to provide indicators of consumer purchase intentions and loyalty. According to Wikipedia, “Customer satisfaction data are among the most frequently collected indicators of market perceptions.” It emphasizes that “[a]lthough sales or market share can indicate how well a firm is performing currently, satisfaction is perhaps the best indicator of how likely it is that the firm’s customers will make further purchases in the future“

 

In most instances, Purchasing provides services to internal clients, that is, businesses and functions within a company. In other words, unless Purchasing is outsourced, there are no alternative sources for these services. In that case, why we should perform satisfaction surveys?

 

I believe that to be considered a Strategic Partner, Purchasing must begin with engaging the Client. Once you engage the Client, you set expectations in their mind and, from there, it makes sense to measure their satisfaction. The comparison of expectation and satisfaction is part of “The Disconfirmation Model” developed by Churchill and Suprenant in 1982 which is based on the comparison of Clients’ expectations and their perceived performance ratings.

 

How is this approach put into practice?

 

My view is that you should only start doing Satisfaction Surveys once you have established a Baseline to compare it. The engagement begins by interviewing the main Clients regarding four dimensions: Strategy Alignment, Sourcing Management, Supplier Management, and Metrics.

 

These questions obtain the Clients’ initial thoughts and scores from 1-6, being 1 (Extremely Dissatisfied), and 6 (Extremely Satisfied).

 

The baseline should be performed within each commodity (Raw Materials, Packaging, MRO, Capital, Logistics, etc.), so in the end you will have a baseline score for each commodity and also for all of Purchasing. At this point, you are able to do a gap assessment to understand the expectation from the Clients in each dimension as well as define actions to address the identified gaps.

 

Once you have a baseline to start with, you can perform Satisfaction Surveys. I suggest doing the survey just once a year through year-end interviews.

In order to obtain unbiased responses, I suggest selecting purchasing personnel from different commodities, e.g., Raw Materials purchasing personnel will interview Clients from MRO, and so on.

 

My preferred method of survey is to use a set of statements where the Client can give the Importance to them using Six Sigma ratings: 9 (very important), 3 (important) or 1 (less important). This is coupled with the 1-6 satisfaction scale as I mentioned before. For statements with scores 3 or below, I recommend asking the Client’s reasoning, so you can identify other gaps to be addressed. At the end of the statements, the final question is the score for the overall satisfaction using the same scale.

 

My article published at MyPurchasingCenter give examples of the questions: Client Satisfaction in Purchasing: A Must or Just “Nice to Have”?

 

What are the benefits?

 

I think the benefits are in 3 areas:

 

  1. To have a formal engagement with internal clients to make sure you have strategic alignment between Purchasing and clients; engage clients in Sourcing                       management, supplier management and performance management.
  2. Identify the existing gaps and expectations from the clients
  3. Be able to measure and track evolution in how well Purchasing is performing its responsibilities.

 

Thank you for sharing your views today on client satisfaction in purchasing.

 

 

About Paulo Moretti



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Paulo Moretti


Sr. Consultant at Vantage Partners


LinkedIn Profile