If It does not Work, Blame the Technology?

Today, most business processes are enabled through technology. That should ideally put technologists (read CIO and their teams) in an enviable position. But the reality is far from it – technology actually gets a pretty bad rap when it comes to such assessment from the business. Most often, from the business’s point of view, technology fails to create significant value, fails to deliver the promised efficiencies and the desired value on the investments. This is true for most major corporate IT initiative, whether they were a result of business driving technology or the other way around. Most supply chain initiatives have a large functional and organization footprint and therefore, often fall into a similar trap. But is technology really to blame for the low returns or is there more to it?

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When firms invest in packaged business solutions, one of the most common and misguided expectations is that the solution will fully enable their existing processes. This is misguided because the packaged software solutions are built to provide only a certain amount of process support that is (1) common across industries and (2) generally considered the best practice in an industry/segment. None of which ensures that the solution will fully enable their existing processes. To make matters worse, such business initiatives generally do not involve any planned changes in the business process even when the existing processes do not fully support the needs. In fact, most of the initiatives do not involve any capability assessment to ensure that the business processes are designed to support the business strategy and the advantages it seeks to create.

No wonder, a large number of such ill-planned initiatives fail to produce the expected results. Jim Shepherd of Gartner (First Thing Monday column, 2/21/2011) estimated that 30% to 50% of ERP projects are thought to be “failures” by the people who were thinking of implementing one. But he says that this may just be another “urban myth” – because of the unrealistic expectations of the organization from a technology. He think that an ERP should be seen more like an “infrastructure” (enabling transaction processing, data management, process integration and information access) rather than the “streamlined (business) processes”. To quote him, “ERP should be viewed as the stable infrastructure that allows an organization to create and deploy the kind of innovation and differentiation that drives real business improvements”.

That is a view I fully support – technology is simply an enabler. The differentiation and hence the competitive advantages can be created only through business capabilities that are superior to others. Such superiority is never an accident, but must be a result of deliberate design of business processes that support your strategy. To learn about how you can assess your supply chain capabilities and drive competitive advantage by designing the right supply chain capabilities, continue reading on the subject in my book on supply chain strategy.

 

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.

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Business Strategy and Capabilities

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The concept of business strategy has existed for a very long time. Pinning down the exact date may be difficult – from The Art of War written about 2,500 years ago to the invisible hand of Adam Smith in the mid-eighteenth century – however, that is not important. The most important part in the continuum of strategy is the actual execution of strategy, because that alone produces the advantages theorized by a strategy. But the execution of a strategy does not produce advantages directly, rather it simply creates business capabilities that in turn creates the competitive advantages enabling a corporation to win.

While a lot has been said on business strategy since Michael Porter came up with his three generic strategies, most of the later concepts  are simply variations of these three. The three generic strategies of cost, differentiation, and focus  continue to be the true basis of all competitive advantage simply because these are the three lowest common denominators of all business activity that consists of selling (hence the cost) product and services (hence the differentiation) to customers (hence the focus).

The ability of a business strategy to drive the required business capabilities is the key to creating successful functional strategies such as the strategy for supply chains. While the concept of a functional strategy is not quite well main-stream yet, it happens to be the missing link in the strategy continuum for a long time – and this is the crux of my book on supply chain strategy, though lately some other people have also started talking about how capabilities mandated by the business strategy can drive the competitive advantages. 

imageIn the winter 2010 issue 61 of the strategy+business magazine, in an article titled, “How The Top Innovators Keep Winning”, the authors argue that it isn’t the amount of money companies spend on research and development that makes them successful, rather it is the particular combination of talent, knowledge, team structures, tools, and processes — the capabilities — that successful companies put together to enable their innovation efforts, and thus create products and services they can successfully take to market. I fully agree with this view point, the capabilities of a corporation are really the only distinct advantages over the competition – specially when seen in their broader context, and these capabilities are created only through a relentless pursuit of understanding what the business strategy mandates and a continuous assessment of “capability gaps” compared to the mandate.

While a lot of supply chain strategy thinking is stuck around the keywords like lean, agile, postponement, speculation, and so on – the real advantages from a supply chain can only be created after a thoughtful assessment of the business mandate and an assessment of existing capabilities. How can one go about doing that? Explore several practical methodologies and real deliverables in my book on supply chain strategy.

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.

Connecting Strategy to Supply Chain

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Going from business strategy development to creating tangible competitive advantages is a long journey. Because no strategy, however brilliant, produces results unless executed.

Therefore, to be useful, a strategy must be implemented. This means that the strategy that establishes the business goals, through which competitive advantage will be created, must then be expanded to articulate actions that will take the business toward its strategic goals. This whole process can be thought of as consisting of three basic steps:

1. Strategy development, that is, the process of evaluating the internal and external imperatives, analyzing the industry, products, and customers, and defining an overriding principle of how the company will try to grow. This is equivalent to defining the ‘‘what’’ and ‘‘why’’ of the problem.

2. Strategy planning is the process of assessing the current state of the corporation and evaluating various alternatives that can be potentially considered to achieve the stated imperatives of the business strategy. This step consists of analysis, evaluation, articulation, and prioritization of these alternatives, in effect defining the ‘‘how’’ of the problem.

3. Strategy implementation is the process of starting and managing the individual projects to implement the favored alternative from step two.

image While most companies have some level of formally defined process for developing a business strategy (step 1 above) and an ongoing slew of projects (step 3 above) creating new capabilities and enhancing existing ones, most do not have a formal process for the activities identified in the strategy planning step. Strategy+business, a management magazine also recognized this gap in a recent article, even though they did not distinguish between the planning and execution phases as above. While the planning phase focus on gap-imageassessment of a firm’s business capabilities, therefore determining what must be done, strategy execution emphasizes the actual execution activities: program management, project management, change management, communication, training, and all other organizational aspects for successful execution. While that is important, the intermediate analysis provided by strategy planning is the missing link in most modern corporations in any recognizable formal fashion. In absence of this planning step, corporations fail to establish and prioritize the execution efforts that are aligned with the goals of the business strategy, and fail to identify and prioritize the filling of specific capability gaps.

This middle step of strategy planning, is what I call functional strategy. This is the step where firms must assess their business capabilities and determine (1) what capabilities they must build that are aligned to their business strategy and (2) how they must build them to create differentiators to create competitive advantage. This is where the business functions such as supply chain fit-in. This is where a firm needs to assess their current and required supply-chain capabilities to identify the gaps and prioritize their investments in building those missing capabilities. This also gets emphasized in the quoted article above.

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Joining the business strategy to the functional strategy by assessing your supply-chain capabilities is the key to building successful supply chains. The final piece of execution is what I call deployment strategy falls into place when real projects enabling specific process are planned, budgeted, spun off, and executed. Understanding this continuum from the business strategy to functional to deployment is key to successfully creating competitive advantages to support your business objectives. For more on the process of building effective supply chains, read my latest book on supply chain strategy.

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.

Effective Supply Chains and the Organization

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In a recent article, McKinsey argues that to be successful, future supply chains will require a rethinking of the internal organizations – where the focus is on collaboration rather than competition. I could not agree more.

The conventional departmental silos in the companies were originally a simple outcome of complex business processes without any intelligent system support. As computer systems evolved, the gap between the complexity of a process and the ability of a technology solution to support the process has narrowed consistently. This has provided businesses with new opportunities to break-down these silos and create nearly integrated (and automated) processes with real-time feedback among processes. Starting with the ERP systems in 1980s, this trend has continued with systems like MRP, DRP, and the current supply-chain systems that have the ability to provide an end-to-end automation of most complex business processes to reduce costs, increase efficiencies and enrich information quality that improves the overall experience for everyone involved in the process – employees, customers, vendors, and service providers.

However, the organizational change to leverage such powerful integrated process capabilities has somewhat lagged behind. Modern supply chains can cover a very large scope of the operations – from demand forecasting through purchasing and manufacturing to the distribution and service of a firm’s products and services. Unfortunately, a large number of companies still view these through the conventional silos of departmental thinking and in doing so, potentially sacrificing some of the efficiencies possible through such systems, though the trend is encouraging. An AMR survey (Supply Chain Gets a Promotion by Kevin O’Marah) found that the number of respondents who said that their supply chain reports to the president/CEO/GM, who owns overall P&L responsibility rose from 51% in 2009 to 62% in 2010. While the integrated view is evolving, 62% is still a long ways to go!

imageIn the referenced article, Is your top team undermining your supply chain, McKinsey makes similar arguments and primarily lists three tensions among organizational silos, supply chain versus sales, supply chain versus service, and supply chain versus product proliferation. I agree with this view – while the availability of packaged software solutions and technologies brings capability parity to an extent, the true competitive advantage is generally a result of a complex interplay of business capabilities, process superiority, and organizational capabilities. To be truly effective, supply chains of the future will not only have to design and build effective capabilities to address ever-evolving business needs, but also effective organizations to leverage such capabilities.

 

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© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chains? How they work, what they afford, and how to design one? Check out my books on Supply Chain Management at Amazon.

Book Review: Supply Chain as Strategic Asset

Excerpts from Husdal.com: “Is there something like a Supply Chain Nirvana, where it all comes together and where a firm’s supply chain  is perfectly aligned with its business strategy, thus creating the competitive advantage the firms needs to stay ahead of its rivals? Vivek Sehgal may have found the recipe in his latest book, Supply Chain as Strategic Asset. In this tightly packed 300-page volume Sehgal shows how important it is to have a top-down-driven approach to supply chain management and how important it is to link strategy and execution, from the board room to the  very last delivery guy.  The supply chain is a firm’s core asset, and perhaps its most important asset, and a firm is only as good or as bad as its supply chain. While a bit overwhelming at first, this book is filled with many important real-life lessons, and K-Mart versus Wal-Mart seems to be one of Sehgal’s favorite subjects.”

 

Read the complete book review by Jan Husdal on the book titled: Supply Chain as Strategic Asset – Key to Reaching Business Goals.

More about the book:

 

© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.

Advantage: Bar Codes (for now)

Supply Chain Digest’s series on Supply Chain by the Numbers for Week of Jan. 13, 2011 cites a Kroger pilot with read rates exceeding 98.5%. The pilot is built around reducing the manual imagetouches during the check-out process. As the products move through the tunnel, their bar-codes are read and accounted for, an OCR (optical character recognition) system supports the bar-code reader by identifying products where the bar-codes may be unreadable. Any items that could not be “read” using the bar-code reader or the OCR device are handled manually at the end of the tunnel to finish the check-out. This was showcased in the recently concluded NRF 2011.

The system can potentially reduce billions of manual touches during the check-our process as well as provide substantial improvements in loss-prevention and inventory accuracy processes. All of which should provide Kroger with definite cost-savings and a much improved replenishment capability in its stores.

Another possible inference? SC Digest says that, “the development of the system is obviously a bet that item-level RFID tags capable of being read en-masse or at high speeds are not coming to the grocery industry any time soon – else Kroger or any retailer would not have made the investment in this UPC-based technology”. This view is corroborated by Kroger’s CEO as well.

Where does that leave RFID at least for now? Well, RFID is in a great revival as well – with a host of retailers adopting RFID technology to manage their store replenishments from their back-rooms as well as to manage their receiving and shipping operations in the warehouses by adopting RFID tags at case, pallet, and/or LPN levels, in addition to renewed efforts to kick-start the item-level tagging.

American Apparel reports 99+% inventory accuracy in their store pilots, Wal-Mart re-launched its RFID efforts at item-level with apparel. J.C. Penney has been another big retailer actively toying with the RFID tags to better manage its supply chain as well as stores. Once the technology matures and item-level tagging becomes mainstream, the POS & check-out processes should also be able to leverage RFID tags!

 

© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.

Supply Chain as Strategic Asset

My second book on supply chain was released over this weekend. It is titled, “Supply Chain as Strategic Asset: The Key to Reaching Business Goals”.

This book investigates the relationship between some of the well-known business strategies and how they affect the selection of the supply chain strategy. As technology is the de-facto enabler of business capabilities in current times, therefore, the book also provides a good overview of the prevalent practices in developing and pursuing effective technology strategy that will best support the business needs.

The objective of this book is to explore the relationship between the three strategies: business strategy that sets the goals, supply chain strategies that define the business capabilities to achieve the business goals, and the technology strategy that enables building the business capabilities effectively. I believe that senior executives who understand this synergistic relationship can transform their companies most effectively by prioritizing the capital investments that are fully aligned with the business goals of the firm and hence provide the best returns on the investments. The book is full of real-life cases from the industry supporting the view points presented to create an effective supply chain strategy.

Next steps:

Read Read Excerpt- Chapter 1 (PDF)
  Read Excerpt- Index (PDF)
  Read Excerpt- Table of Contents (PDF)
Buy Buy at Amazon
  Buy at Wiley
  Buy at Barnes & Noble

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.