ANSWER: Each offer insight as to how companies should approach their supply chains during these tough economic times.
Complex supply chain problems cannot be solved with a forward logistics approach that starts at the port of entry or a forward distribution center. In order to run most efficiently, supply chains need to be synchronized from source to consumption, with a focus on optimizing demand and supply and minimizing process variability. But who is actually doing this? The answer is very few organizations. Case in point, I just received a list of (50+) retailers who are shutting all of their stores or a majority of their stores. I realize that 2008 comp sales are down compared to 2007, but does a negative 10% in comp sales (assuming the same margin) warrant filing chapter 11 or shutting down 50% of a retailer’s stores? If a negative 10% has that type of impact on a company’s bottom line then there must also be tremendous waste from source to consumption. This waste signals an important opportunity to invest in supply chain synchronization by deploying processes and technology that proactively manage variability. Let’s examine how all companies can make changes today to impact profits and losses, and their long-term competitive advantage.
Pyramids Aren't Built for ‘The Living'
In my humble experience, most retail organizations
are misaligned from the top down. It starts with the
hierarchical, “top-down, pyramid-style, leadership
structure” that offers little to no focus on supply chain
management. Most retailers are run by merchants who
focus very heavily on sales and merchandising, instead
of also creating an executive priority to cut waste
throughout the enterprise.
How many companies do you know of with a Supply Chain Group that is cross-functional from source to consumption? This reporting structure looks more like a tree, or matrix than a pyramid. Unfortunately cross-functional organizations are not as prevalent or widely used, but they encourage and support the flow of ideas and information.
While Pyramids are built with the intention of preserving the past and focusing on the ‘non-living’, cross-functional (or ‘tree style’) hierarchies offer branches and roots that breathe life into a company and encourage its well-being. Cultivating new ideas, information, experiences, and creativity is important to the survival of any organization. If your organization is built like a pyramid, perhaps a cross-functional approach would bring about growth and revitalization.
A Cue From Einstein
Have you ever noticed when a company is facing
financially troubling times the first resources that are laid
off are the creative, imaginative, go-getters, passionate
resources focused on continuous improvement?
I visited a retailer last week and we were discussing LEAN, Six-Sigma and Value Stream Mapping techniques. I was quite impressed that they were using LEAN to improve their organization, but when I asked how are they were progressing with their initiatives, surprisingly their answer was, “We let that team go because of soft-sales.”
I just about blew a gasket, but I kept my thoughts to myself as I realized what Albert Einstein stated, “Breakthroughs are result of breakdowns.” Yet, why do we always wait for breakdowns, which result in irrational behavior and decisions? Why are companies not in a state of paranoia 24/7 and 365 days a year? If they were, they would be proactively creating breakdowns which consciously create breakthroughs.
It is even more important during financially hard times that companies emphasize LEAN principles, cost containment and waste reduction. However, ideally this focus would be ongoing, regardless of macro economics.
Develop a Long-Term Investment Strategy
When do you buy stocks? When a stock is at a 52-week
high or when it is at a 52-week low? Assuming the
company is viable, most stock brokers and financial
planners will advise clients to buy low and sell high,
or to continue to buy at all times (a weighted average
investment strategy). Therefore make the investment now
in your organization’s future, restructure if required, but
don’t retreat. Those who invest now will be light years
ahead of their competitors. Not only do strategic supply
chain investments impact financial results (e.g. EBITDA)
in the short-term, they also prepare a company for future
growth or a market shift. As a prime example, Amazon
reinvented themselves from a traditional Web 1.0 to Web
2.0 company during the e-commerce bust and they are
prospering even through our tough economics. At the
time of the bust Amazon was trading at $7.20 per share
(October 1, 2001); as of December 18, 2008 the stock
closed at $53.18.
Solution Summary
In summary, I offer three simple solutions for companies
trying to improve their supply chains from source to
consumption:
- Eliminate hierarchical organizational structures and
divisions, and replace them with a cross-functional matrix
TEAM that is focused on the supply chain from source to
consumption.
- Create a sense of paranoia where everyone feels like
they are never going to finish the race. Another way to
think about this is to always consider your company is in 2nd place where it must focus on continuous improvement
and the elimination of waste 24/7.
- Start investing and understanding the variability that impacts your company’s supply chain. Is it cash flow (Order to Cash), inventory dollars (inventory as a percent of sales and WIP), labor dollars (exempt and non-exempt), transportation dollars (landed cost, inbound and outbound dollars as a percent of sales), or a combination of these costs and time variables? Once you have these identified, measure them, report on them, and control them using enabling supply chain technology.
As we like to say at enVista, “Hope is not a strategy.” If you or your team could use assistance in justifying project ROI, determining a modified or long-term supply chain strategy, or would benefit from customized, in-house training and knowledge sharing opportunities, please contact us; we’re here to help.
Finally, on another note, I am pleased to announce enVista’s inaugural user conference, enVision: enabling enterprise excellence, September 9-11, 2009 at the Green Valley Ranch Resort in Las Vegas.
Supply Chain Digest Editor-in-Chief Dan Gilmore and I will talk about how to optimize supply chains from source to consumption. Plus, our clients will share their case studies and cost saving strategies first-hand. And there will be several opportunities for peer sharing and networking. Save the Date and watch for additional details to come!
P.S. Inspiration for this article came, in part, from two books, Orbiting the Great Hairball and Sway. I highly recommend both!
Click here to check out my blog.
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