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2011

An UCLA management professor identifies the attributes of what he calls “bad strategy” and lays out a three-step process to build effective business strategies.

I read quite a bit of literature on business strategy in college and then some more when I was doing research to write my second book on supply chain strategy. All along, I thought of strategy as “effective” if it creates competitive advantages and “ineffective” if it does not. Then, I came across this article from McKinsey Quarterly and got acquainted with “bad strategy”.

The author, UCLA management professor Richard Rumelt says, “Bad strategy ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests. Like a quarterback whose only advice to his teammates is “let’s win,” bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values. Each of these elements is, of course, an important part of human life. But, by themselves, they are not substitutes for the hard work of strategy.” Then, he goes on to elaborate on the characteristics of bad strategy as, Failure to face the problem, Mistaking goals for strategy, Bad strategic objectives, and Fluff.

On creating a good strategy, Rumelt lays out a three-step process of Diagnosis, Guiding Policy, and Coherent Actions. This specifically caught my attention because it aligns well with my own strategy life-cycle described in my book and reproduced below.

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Creating a strategy must absolutely follow a diligent process of identifying the core-strength of the business that the corporation believes, can be leveraged to create competitive advantage. This is what is created in step 1 of the process depicted above. Once the central principle or the core strength is identified, the corporation must assess the gaps in its capabilities that will prevent it from leveraging the “central principle of business growth”. The third step then simply is to identify specific initiatives that will help the corporation in creating those “capability gaps” identified in step 2. 

To learn more on how the business strategy should be developed and how it can applied to drive supply chain strategy and other functional strategies, read the related articles below or my book titled Supply Chain as Strategic Asset.

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon .



Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/0Ib-USUAo7k/good-strategy-bad-strategy.html

According to Dun & Bradstreet, the business cost of disruptions due to earthquake and tsunami in Japan will be $209 billion in sales volume. This potentially affects 86,418 businesses, 311,934 employees and is spread across 715 industries. Manufacturing durables tops the list of number of suppliers based in Japan that are potentially impacted. Globally extended supply chains mean that this group of suppliers will affect many more businesses across the globe.  

Source: WikiMedia CommonsSome early estimates of the impact of such disruptions are already available with news from Honda and Toyota.

  • Honda has revised the projected profits downwards by 63% to $2.43 billion for the fiscal year through March (source: WSJ).
  • Toyota will lose its number one spot for being the biggest auto-producer back to General Motors, after holding it since 2008. Toyota also lowered its projected profit forecast to 280 billion yen ($3.5 billion) profit for the fiscal year through March 2012, down from 408 billion yen for the previous fiscal year (source: Chicago Tribune).

Electronics is another big area of impact. Citigroup Global Markets estimates that Japan is responsible for 16% to 30% of electronics component supply and that is bound to affect the global electronics supply chains as well. iSupply reports more numbers: Japan supplies 10 percent of the DRAM worldwide supply based on wafer production, 35 percent of global NAND flash production, 6.2 percent of the world’s LCD panels (more than 10” in size).

Related Articles:

© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon .



Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/1HnD-qsdlso/cost-of-supply-chain-disruptions.html
vsehgal

The Customary Top 25

Posted by vsehgal Jun 9, 2011

Gartner’s Top 25 supply chain list for 2011 is out. The surprises are not in who is in, but who is out! But the financial analysis proves once again that supply chain competence matters, even in a recession. 

AMR introduced its top 25 supply chains list seven years ago, religiously kept intact after Gartner took over AMR. Since then, it has become kind of an annual custom. In this year’s list, all the usual suspects are intact: Apple, Dell, P&G, Wal-Mart, HP, etc. Gartner has a new name for them, they have started calling them mainstays and it figures. The new additions this year are Nestle, Starbucks, 3M and Kraft Foods: Not much of a surprise since all these are strong companies with sound management practices and effective business strategies.

The surprises were in the companies that were pushed out to make room for these four. From 2010 to 2011, Nokia, Lockheed Martin, Best Buy, and Schlumberger got the boot. The previous year (from 2009 to 2010), Toyota, Walt-Disney, TI, Publix, and Sony Ericsson were pushed out. All these companies that slid from the top 25, are also leaders in their fields and very strong performers.

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So, what is behind these companies getting knocked out from the top 25? You might believe that most of these companies simply lost focus during the last 3-4 years due to the recessionary and consumer pressures. I checked the quick financials for these companies (Google finance), and in most cases, these companies have lost considerable revenue and suffered reduced profitability. While there are obvious exceptions to this rule (for example, Lockheed Martin, which has gone from strength to strength on burgeoning defense contracts), most other companies fit the rule. However, the companies that are consistently on the list: Wal-Mart, Apple, McDonalds, Amazon have also been through the same economic environment and show similar financial trends.

But therein lies the contradiction: You would think that the companies with supply chains in top 25  list would fare much better in a recession because of their supply chain prowess (leading to their ability to have lower cost-basis and higher agility)? Well, they actually did! Even though it may not be obvious. See a quick comparison between Publix (strong supply chain, though slid from top 25) and Kroger (was never in top 25) to convince yourself: Publix revenues held much better and profitability kept the positive trend! Same is true for Wal-Mart (top 25 “ mainstay”) and Best Buy (knocked down in 2011) and you see the same trend again: Wal-Mart had very less volatility in revenues & profitability compared to Best Buy.

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Conclusion? Supply chain competence matters – even when it is not so obvious!

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon .

del.icio.us Tags: supplychain


Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/a3n8jCVr-MY/customary-top-25.html
Between 2009 and 2011, successful execution of business strategy gained the highest momentum among retailers perception of risks.
Retailers are less worried about the consumer spending, however, the consumer trends still rule: Retailers still want to know what interests consumers most and how to translate that into their merchandise on the shelf. image Another significant finding from the BDO USA’s report on retailers’ perception of risks in 2011 reveals that they are much more focused on defining and executing a successful business strategy. The report is based on SEC 10-K filings of the 100 largest US retailers.   
In fact, the focus on business strategy seems to be gaining ground in a very substantial way: The frequency at which the failure to execute business strategy was mentioned as a risk grew from 32% in 2009 to 80% in 2011. A newfound focus on business strategy should definitely help the retailers in the current situation that is more volatile and competitive than any other similar historical situation.
image Some of the other concerns that gain retailers’ attention are shown in the top 10 list.
However, refactoring the top 10 list by the amount of change from 2009, a more interesting picture emerges: Business strategy appears to have gained the most momentum from 2009, followed by changes in regulatory & legal concerns. Loss of key management appears moves into top 5 as well, as the economy  improves and mobility among the employees becomes a reality.
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© Vivek Sehgal, 2011, All Rights Reserved. Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon .

Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/9sSv7XfFMPc/consumer-trends-trump-but-business.html

Not having a good demand forecast can create business inefficiencies from sub-par price realization, higher inventory costs, higher replenishment costs, and significant lost sales. But the same is true when companies have too many (disparate) demand forecasts driving these functions. What is an enterprise to do? Create a single demand forecast that addresses their various needs, across functions and across time, and create plans that are fully aligned with each other.

Recent research from RSR caught my attention. The research focused on how retailers are using (or not using) their demand forecasts. The chart below says it all.

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Traditionally, demand forecasting has primarily driven the replenishment for retailers. This means that other departments have created and used their own demand projections: As a result, companies have plans for Pricing, Assortment Planning, Replenishment, and so on, that are simply misaligned.  What do these misaligned plans do? Not only do they enhance the silo-ed mentality among these departments, they effectively raise the cost of doing business.

  • One, every department spends their energy on creating a demand forecast rather than using a central forecast. That is a substantial duplication of effort and cost. In addition, each department will have their own level of maturity in creating a forecast, which means dealing with a large variety of forecasts, with each one claiming to be more accurate than the other. 
  • Two, the misaligned plans based on disparate demand forecasts frequently result into assortments that nobody wants and inventory that must be discounted.

Therefore a good, centralized demand forecasting function can be central to achieving not only functional alignment, but also to reduce cost of operations. While the RSR chart does cover some of the common functions, a good demand planning competency can be put to use across the enterprise in execution functions with a short-term focus to planning functions with a long term focus and a lot of processes in-between. The following tables list some of these functions.

Short Term Processes Driven by Demand Planning

Process

Objective

Horizon

Granularity

Units

Inventory Planning

Establish inventory targets

Weeks to months

Product: Merchandising Category, Departments
Location: Facility, Regions
Time: Week to Quarter

Dollars & Units

Replenishment Planning

Determine purchase requirements

Sourcing & Procurement

Execute purchase orders

Warehousing

Warehousing & allocation

Shipping

Transportation & distribution

Price Planning

Establish optimal price and discounting

Promotions Planning

Plan for optimal promotion events

Clearance Planning

Plan for clearance events

Medium Term Processes Driven by Demand Planning

Process

Objective

Horizon

Granularity

Units

Merchandise Financial Planning

Revenue & profitability targets, budgets for marketing & discounting

Few months to couple of years

Product: Merchandising Category, Departments
Location: Facility, Regions
Time: Week to Quarter

Dollars & Units

Portfolio Planning

Product life-cycle planning

Assortment Planning

Product-location determination

Long Term Processes Driven by Demand Planning

Process

Objective

Horizon

Granularity

Units

Distribution Network Design

Optimized network design for projected demand

3-5 years

Product: Category based on distribution attributes
Location: Facility
Time: Quarter to Year

Weight, Volume, Cases, for the expected flows along the network paths

Distribution Network Capacity Planning

Capacity planning for warehousing & transportation

For a detailed discussion on how to create and leverage a single demand forecast across the enterprise, please click on the related articles links below.

Related Articles:

Resources:

© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon .



Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/lhi_scfg2vU/leverage-your-demand-forecasting.html