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Showing posts with label strategy. Show all posts
Showing posts with label strategy. Show all posts

Monday, July 3, 2023

More on Scenario Planning - 5 Thoughts for Surviving the Supply Chain Downturn

 "You can be wrong half the time and still make a fortune"

I am reading a fabulous book about managing your emotions as it relates to investing. The book is titled, "The Psychology of Money" and, as you can imagine, my mind went to supply chain strategies and how this psychology can apply. My mind also went to a theme I have been writing about relative to scenario planning. 

The quote above is from the lead page in Chapter 6 titled, "Tails, You Win". and it truly embodies a lot of what scenario planning is about. Here are the key lessons:

  1. Your Business Plan Cannot Depend on Perfection:  Whenever I see someone developing a plan the first question I ask them is, "What if assumption [fill in the blank] is not accurate? What happens to the plan? If they cannot answer that question or the answer is the plan falls apart, then there is no plan. There are numerous sayings on this but it all comes down to not developing a plan which relies on a hole in one. Holes in one rarely happen. "The more you need specific elements of a plan to be true, the more fragile [the plan] becomes".

  2. The Plan "Bets the Farm": The quote from the book which applies here is: "Few gains are so great that they're worth wiping yourself (or your business) out over. When I hear people say they are going to be the "Amazon of..." or the "Tesla of...." I know the plan is doomed. Going to Vegas and putting it all on one number is not a strategy.

  3. Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. The follow on quote to this is, "you plan, God laughs". The author reinforces over and over again that "A plan is only useful if it can survive reality. And a future filled with unknowns is everyone's reality".  Bottom line is you must plan on the plan not going the way you want it to. 

  4. Margin of safety / room for error: Allow for margins. It is one reason why leverage really can be a problem. Using leverage in financing removes a lot of the margin for safety and then you are back to violating rule 1 - you are hoping for perfection. 

  5. Develop a barbelled personality - be optimistic about the future, but paranoid about what will prevent you from getting to the future. Andy Grove, founder of Intel, wrote a book titled, "Only the Paranoid Survive" and he was write. However, you must also be optimistic (not blindly) about the future. The future curve is almost always up and to the right for great plans as long as they meet these rules. 
These rules are just fantastic reminders of what makes a great business strategy and makes a business that can survive both the great times and the not so great times, like freight and supply chain entities are seeing now. 

Since it is July 3d and I am off tomorrow, I will leave you with a fantastic patriotic song. As a veteran, I am "Proud to be an American". 



Wednesday, June 28, 2023

Supply Chain Transformations Involve Many Elements - Thinking is The Most Important

It appears every supply chain I know of is in the middle of a big transformation. In many cases people misread the COVID Pandemic surge as a "new normal" and many invested heavily only to be shown that the idea of mean reversion is serious business. This is affecting even big and very sophisticated supply chains. Today we learned The Home Depot is even relooking at the supply chain efforts started during the COVID period (H/T: Supply Chain Dive). 

With great fanfare, just a few short years ago, Home Depot talked about the investment of $1.2 billion to create the "One Supply Chain". Today we learned they are now embarking on a $500M cost reduction in their supply chain as sales "return to normal".  This is happening all over as we discussed previously (Amazon adjusts) and is not unique to Home Depot. So, what are these transformations is missing? How do we whipsaw so quickly? Again, this is pervasive across many companies so I think it is worth thinking about. I have a few ideas. 

  1. Strategy Duration: Many companies confuse tactics with strategy. Many companies also confuse short term "flash in the pan" with true change. I have always discussed the idea of mean reversion and have also used the statement "if something is too good to continue, it likely will not". Did anyone think the growth rates of 2020/2021 could continue indefinitely? So, strategically, should anyone have set up their long term capital investment and strategies around a growth rate that mathematically just could not continue? Lesson One: Strategy has to survive at least 5 years otherwise it is a tactic. 

  2. Market First: Supply chain leaders and supply chains can sometimes get caught up in the science of running a supply chain but the leaders forget that all strategy has to start with the market then work its way back into the operations. I discussed this in my blog post titled: Go To Market Strategy Before Supply Chain Strategy

  3. Scenario Planning: Many leaders forget this incredible necessary and powerful competency. As I wrote in my blog post: Scenario Planning - Face it, You are WRONG, predicting the future is a very difficult and dangerous business. In fact, I would say it is futile. However, what you can do is predict multiple futures and assign probabilities to each "future". You then can plan for it and also identify the key factors that you will monitor to determine which "future" is going to happen. The goal is to maintain optionality as long as you can. Don't commit until you absolutely have to. 

  4. Change Management: Likely the most important part of any supply chain transformation is the idea of change management. You have to communicate, communicate and communicate along with doing the hard work of bringing people along with the transformation. 
So, have we learned any lessons here? Maybe. Although I fear the rush to supply chain automation could be another situation where supply chain industry think and FOMO is taking over. My prediction: in 5-7 years people will realize all this automation has made operations far too rigid and not agile enough to change. Much of it will get ripped out and as Elon Musk said in a tweet from 2018:
“Yes, excessive automation at Tesla was a mistake. To be precise, my mistake. Humans are underrated,” 

Strategy is hard work and it takes a lot of thinking. Humans are inclined to want activity and generally they do not believe thinking is an activity. But, it is the most important activity you can do in a transformation.  

The Who makes a return appearance in "Won't Get Fooled Again" (or, maybe we will):



Wednesday, October 19, 2022

Go to Market Strategy before Supply Chain Strategy

This article is directed mostly towards practitioners who operate supply chains within companies which market and sell products. I have done a lot of thinking recently about the discussions going on concerning "is just in time dead" or "on-shoring / near shoring" etc. There are a lot of conversations happening relative to all sorts of strategies for supply chains (and no lack of consultants who want to sell you on the latest and greatest ideas). My thesis here is that the first thing you have to develop and fully understand is your business' go to market strategy. Then, after that is completely articulated and written down, you can discuss your supply chain strategy

So, what is a go to market strategy? It is simply writing down what products you will provide, what markets will you provide them into, who are your competitors, who are your customers and how will you compete? In a 1993 Harvard Business Review article (and subsequently in his book Double Digit Growth) Micheal Treacy and his co-author Fred Wiersema argue that most companies have to pick one strategy they will really excel at and exploit it. The three strategies, from which a company picks are: 1) Customer Intimacy 2) Operational Excellence 3) Product Innovation. It is a fairly rare unicorn which can "master two".

Just by the names of these strategies and without reading the book (Although I highly encourage you to read it) the reader can understand the implications for your supply chain strategy:

  1. Customer Intimacy - High service is the calling card. Maybe not service at any cost, but high service nonetheless. The thesis here is that if you provide a truly differentiated and incredible service level, customers will be loyal and they will buy more from you. You will also keep your competitors away as they likely cannot functionally or financially compete against you. 

  2. Operational Excellence - This is low cost. You will compete on cost and every nickel counts. Your customers do not want (and certainly will not pay for) extra bells and whistles. Just do what you say you will do. At this year's CSCMP Edge conference I attended a great presentation with one of the returnable pallet providers. Their strategy was all about efficiency and low-cost. 

    It is not "bad" to be in a low cost industry. You have to know it and embrace it and that is what this person did in his presentation. The company's network design, systems and operations were totally geared towards efficiency. They will do exactly what they say they will do with no frills, bells or whistles and they will do no more. The customer gets what they need at rock bottom prices. 

  3. Product Leadership - Think Apple. This is where the product is so good that customers, while they want efficiency, will actually "pay up" or even wait for the product because that product is so good and desirable. Everyone uses the iPhone as an example of this and so some may think only Apple can do this. Let me use another example: The Kitchenaid Standmixer. I worked specifically for this division of Whirlpool for over a year and I can tell you, people will wait for that product. It is iconic. Everyone wants one. Mother's took bus tours of the plant with their daughters before they got married. So, yes, if you truly do have an exceptional and differentiated product, you do not need to be Apple to win. 
So, what does this have to do with supply chain? My submission is it has everything to do with supply chain because you first have to understand which of the three your company is doing to determine what your supply chain strategy will be. Imagine if the person from the pallet company decided his supply chain strategy was going to be "Customer Intimacy" and he built a highly responsive, high service and high cost supply chain. This would be a complete mismatch to the customer's desires and expectations of a low cost and highly efficient supply chain. The supply chain leader needs to fully understand the "go to market" strategy of the company before s/he can build out the supply chain strategy. 

One last bit of advice and warning: Be very leery of a company that wants to be one of the strategies above but is in an industry that demands another strategy. For example, many sales and marketing people want to be in a customer intimate industry because that is what they do. It is fun and energizing. But, this what they want. What do the customers want? If the customers want operational excellence or product leadership then what you will have is chaos. You will never get the supply chain strategy right.

In conclusion:
  • Understand your company go to market strategy before you do anything.
  • Ensure that stated strategy matches up with the industry you are in. 
  • Then, and only then, develop and implement your supply chain strategy. 
After two years of supply chain disruptions and craziness, I tend to think I am Napoleon at Waterloo so tonight, I offer ABBA singing Waterloo:





Sunday, July 12, 2015

A More Thoughtful Article on Capacity

This, from BCG, is a much more thoughtful article on the true capacity issues in transportation.  The issue is NOT trucking capacity as that can easily be solved with private fleets, some technology, moving DCs to more efficient locations etc.

The real issue is around port capacity, rail capacity, infrastructure and consumer demands.  These cannot be moved around.  And this is what companies have to be thinking about now assuming they want to stay around.

What the trucking companies ignore is the demands being put on transportation are due to rising consumer demands - the demands are not just created by the shipper for the heck of it.  My advice is shippers really need to think more about private fleets.  You can be very competitive, get higher loyalty from the employees and be far more nimble.

Wednesday, November 13, 2013

Rethinking The Core Carrier Strategy - Too Many Eggs in One Basket?

There are two sides of a continuum in procurement strategies for transportation.  On one end is full "auction" type purchasing where you put everything out to bid, almost constantly, and let the market adjust the prices.  On the other end is single sourcing where you don't bid anything and you partner with a core company.

Close to sole sourcing is a strategy called "core carrier".  This strategy has you limit your carriers to a "vital few" and then you work with them.  Sounds great however lately I have seen this degenerate to what is virtually a sole source strategy.  So, what is wrong with this and is it time to rethink it?  It appears Amazon thinks so.

As I wrote on Monday, Amazon is teaming up with the United States Postal Service (USPS) to execute Sunday deliveries.  Sounds great and the possibility of this occurring I wrote about back in 2012 but there may be more to this.   In The Wall Street Journal's "Heard on the Street" column (subscription required) they mention how this may actually be a strategic decision to ensure they have options beyond FEDEX and UPS.

In conjunction with their private fleet for grocery deliveries, Amazon appears to be diversifying and growing their options.  A real strategic risk for Amazon is they become so beholden to Fedex and UPS that they are controlled by them.  This strategy appears to be their attempt to counter that risk.

For the average shipper you should be thinking about this strategy as well.  Initially the idea of sole sourcing or core carrier sounds great - low administrative costs, one point of contact, easy to do business with.  Long term, however, you have to ask yourselves if you are turning the keys to the kingdom over to someone who many not have your best interest in mind.  No fault of their own but their interest will always be in the profitability of their company.   So, here are some actions you should be thinking about to protect the long term ability of your company to execute their strategy:

  1. Be careful on too much concentration in one carrier - especially intermodal
  2. Ensure suppliers know (and it is believable) that you have options in the market place.
  3. Be careful of tying systems together which are core to your business.  Beyond EDI, once their are unique systems integrations you are married (sometimes for life).
  4. Think about strategically propping some carriers up to ensure they are competitive.  Think about Amazon and the USPS.  Why go with what is essentially a bankrupt carrier?  Amazon wants to keep them in business and is going to help them.  You may have to do that with some smaller carriers yourself. 
  5. Keep options open with private fleet.  By running a private fleet you will know as much or more about running a fleet than your suppliers.  Keep that as a competitive advantage. 
As always, there is a lot to learn from Amazon.  

Wednesday, July 31, 2013

What Supply Chain Needs is Long Term Thinking

We all know there is a conflict - a push / pull relationship if you will - between delivering current results and looking out to the long term.  The story goes that the short term are the "table stakes" meaning you have to deliver those in order to earn the right to think long term.  This makes sense.  After all, you would not want your company to go out of business in the short term just to ensure some long term plan is in place.

However, I do not believe that is our problem.  Actually, the issue is the other way around.  Very rarely do I see real true long term thinking.  How could you identify if your organization is spending too much time on the here and now versus setting up your strategy for the long term?  Here are some indicators to look for:

  1. Do you have any projects which span multiple years?  This is really a key indicator of strategic versus tactical thinking.  Tactical thinkers believe that somehow, magically, the whole world changes at the beginning of every year.  This, of course, is not true and therefore a strategic thinker is one who delivers todays results while working on a multi year strategy.  Very few real strategic plans and projects can be done in one year. 
  2. Does your bonus plan involve a strategic component?  If you are paying bonuses to your employees, especially senior manager and above, only on a yearly basis (they start and stop in a year) than you must likely are too entrenched in tactics and are not thinking strategy.  A way to ensure some strategic thinking is occurring is to provide bonuses based on some kind of 3 year (or maybe even 5 year) result.  Why?  Imagine you want to create an incentive to your team to redesign your supply chain network for the future.  This is at least a 2-3 year project to get it installed then, most likely, another year or two to find out if it actually works.  If you provide bonuses to hit timelines and finish tasks then you are not paying for performance rather you are paying for activity.  Pay for activity and you will definitely get more activity - just not sure that is what you want. 
  3. Every performance appraisal should have multi year projects on it.  Remko van Hoek (Twitter handle @remkovanhoek - Global Procurement Director for PwC and Visiting Professor at Cranfield School of Management) stated in an exchange that he has always had multi year projects on his goals for the last 3 roles he has been in.  This is the sign of a very strategic organization.  He also suggested said in a response to my tweet:  "Begin and end with the customer, think supply chain holistically, not silo, individual or quarterly gain".  Good advice and if you follow that you are pretty well assured that you will be thinking long term. 
Finally, I would like to address the issue of longevity in roles.  One of the big strategic problems is the speed with which people move around.  How can you ask someone to be strategic when they will be measured on just what they do this year and, if they do well, they will get promoted and move on.  For key roles (such as VP of Supply Chain) you have to inform them they will be in the role for 5 years and they will be measured on a 5 year performance cycle.  The first year or two are set up, then the last year 2 -3 years are execution.  Then and only then will you know if they did well and if they thought of and implemented a great strategy.  

If they come into a role, do some quick fix (slash costs) then get promoted I can assure you it will be a disaster.  

In the end, how you set up your culture and your rewards system will determine if you have a great strategy or just a bunch of disparate tactics. 

Warren Buffett once said (paraphrase):  Our business is not based on the orbit of the earth around the sun - meaning they do not set arbitrary targets and deadlines based on when January 1 comes along.  You should avoid doing that as well. 

Continue the conversation on Twitter using hashtag:  #Thinklongterm

Sunday, March 24, 2013

Execution IS A Strategy

At Logistics Viewpoints Adrian Gonzalez writes a post titled: "Forget Innovation, Just Execute Better" and I found this to be extremely interesting on two fronts.  First, it is interesting that "flawless execution" does not get the respect it deserves and if you dedicate your life to this you are somehow working on something "less" than strategy.  The top performers deal with strategy and all others deal with the day to day execution - or so the top consultants will say.

Of course, while that is a highly held belief of HR departments and other strategy people what we find in real life is it usually is the execution portion of the business that makes or breaks the company.  As Adrian rightly points out: does anyone believe HP needs different strategies or innovation?  No.  It is a company which just executes very poorly.  While the "big 3" were trying to innovate and develop high level strategies (Remember Jacque Nassar at Ford rolling up junk yards under the Greenleaf subsidiary - Ultimately a failure.) Toyota was focusing on execution and doing it really well.

Second, more and more it is execution which differentiates companies.  Does the product sold at Wal-Mart really differ that much from Target or J.C. Penny?  They are buying from the same vendors and even when they have an "exclusive" it usually is a SKU number change versus a true differentiation.  So, what makes the experience different between these stores for the consumer?  Execution is what makes it different.  Items such as:

  1. Low Cost
  2. Availability
  3. Easy in and out
  4. Presentation
  5. Customer Service
  6. Web availability
These are all execution actions and they truly differentiate these companies (I will leave it to the reader to determine which does it best / worst).  

To further the study of this topic, I highly recommend everyone read: "Execution: The Discipline of Getting Things Done" by Larry Bossidy and Ram Charan.  This book really talks about the importance of elevating the discipline of "getting things done" to a very high level - at least to a level equal to strategy and innovation.  Remember, innovation is not always just new products but if you can innovate on ways to execute tasks that could reap huge rewards (Think about all the innovation of basic processes like "checking out" which makes an Apple store such a great place to shop) you may find huge competitive advantage. 

Here is how Bossidy and Charan define Execution: 
  1. The missing link
  2. The main reason companies fall short of their promises
  3. The gap between what a company's leaders want to achieve and the ability of their organizations to deliver it. 
  4. Not simply tactics, but a system of getting things done through questioning, analysis, and follow-through. A discipline for meshing strategy with reality, aligning people with goals and achieving results promised.
  5. A central part of a company's strategy and its goals and the major job of any leader in business
  6. A discipline requiring a comprehensive understanding of a business, its people and its environment.
  7. The way to link the three core processes of any business - the people process, the strategy and the operating plan together to get things done on time. 
I highly recommend the book and you can buy it here:



Monday, February 4, 2013

Does Logistics Eat Strategy for Lunch?

An interesting review of two books about World War II entitled: "When Logistics Beats Strategy". The review states:
"Disciples and devotees of "strategic thinking" might find both books humbling. They should. In wartime, logistics eats strategy for lunch"
Given how many companies develop "War rooms" and discuss business using "going to war" metaphors it is fascinating how many of them refuse to learn the importance of logistics and the role logistics has played in the big battles of our time.

I wrote about this in previous installments about the Israeli Defense Forces (IDF).