This part of my blog concerns Change Management and will cover the methodology and analyze from a Supply Chain Management perspective. In the next part I will cover the aspects that concerns your market strategy.
Scenario: You have just been hired as CEO or taken over a larger business unit. The company is struggling with profitability problems and has the possibility and potential to grow on existing and new markets but haven’t found the right strategy yet, what do you do?
Let’s clarify and simplify some more conditions: The company works with both domestic and international business, B2B production and designer company, could be retail business or any other production or service based area.
First of all, what I think is very elementary but nevertheless important is for you to understand the following before you make any changes: What solution does the business idea offer, how does the company convince new potential customers that our solution is the only solution? If the demand isn’t there, then how could we create it?
Approaches with no chronological order since a lot of it could be done on the same time:
- Get to know your organization, contracts you are in and what processes they have.
- Scan your market and the competition you are in.
- Identify and analyze your value of chain and the supply management within your organization.
- Contact your customer and find out how satisfied they are with your products or services.
- Set your goals and targets, if they already are set then evaluate the strategy to reach them.
- Create your strategy and implement it.
- Categorize your action points in Strategic, Tactic and Operational.
Get to know your organization and the processes it has.
- I would always recommend spending some time in every department to get to know the processes and the people who work there.
- Contracts, what contracts are you in today who are the key customer and supplier. Start with the key accounts and work your way down. This will also help you to quickly get updated on what the revenue and risk strategy the company has. Cash flow and P&L situation; let your CFO go through your P&L, balance sheet and the cash-flow situation.
- Do one-by-one meetings with your management group and gather everyone and communicate your upcoming tactics.
Scan your market and the competition you are in.
- Set up meetings with your key accounts as soon as possible. It is important to show engagement with them as soon as possible. Work your way through the customer portfolio.
- Competition and market share, use the network you have to get input on what is happening on the market. How is the development and innovation of speed, what are the latest trends and your position on the market?
Identify and analyze your value of chain and the supply chain within your organization.
- The value of chain is where they company is adding value to its products or services. Some companies have normally 3 to 4 core area of business. E.g. designer or production process, buying process & allocation and sales & marketing process.
- Supply Chain Management, this is the heart of the company and sets the condition for your company to be more profitable and expand in the way you want.
Questions you want to ask yourself as a manager when you analyze your company’s SCM.
Planning and Forecast
Firstly find out what the customer wants and set your actions and goals accordingly. How is the company forecasting according to demand within sales vs. order and production? Are you using the right tools and information to back up your figures? Try to be as accurate as possible because it could cost you a lot of money if the deviation is too high. The forecast and planning is also very dependent on your complexity of product mix, percentage of change in products or services, storage location costs, supply chain locations, planning cycle and seasonal or fluctuation in demands.
My thoughts on that: Identify you critical paths within your operations. Target these and set then metric measurement accordingly. Focus a lot on using as few metrics and KPI: s as possible in the beginning, although you could of course alter and change according to your strategy after being satisfied with your result. Make sure your metric measurements and KPI: s all correlates with your strategy and targets that will steer you in the right direction. Also remember that the metrics should be easy to measure and communicate. If you have problems in explaining them to your staff or organization then you will have problems in engaging your staff in your improvements. Combine operational metrics with financial KPI: s with a cause and effect purpose. For example, flying home your products to meet customer service levels and delivery-on-time requirements should also be validated from a financial KPI perspective. Who should pay for higher transportation costs, the customer or your company? This could also apply to choice of choosing outsourcing or in-house services etc. What is important is that they need to correlate with your goals and strategy. Prepare yourself to meet these order demand fluctuations by working harder with your forecast. It is of course necessary in most cases to do your aggregated budget but if your market are fluctuating and going really fast, I would definitely recommend to work more active with shorter forecasts and follow ups that are as accurate as possible.
Procurement and important questions; How is the company acquiring their material or services, the amount of suppliers, where are they located? How does the supplier meet your demand orders? Different product categories could vary in complexity in design and will then demand different criteria’s from their supplier. Sustainability and CSR, do they have all the certificates that you want? Please also consider your credit and cash flow situation when choosing the right supplier.
My thoughts on that: Many companies struggle with sustainability, lead-times, quality problems and cash flow condition. Therefore it is very important when you valuate your suppliers that they also meet all your criteria’s and not just only the right price, since a low price with a lot of defects and delays in production could be devastating for your business. The supplier should also possess the right code of conduct like BSCI etc. There are different types of sourcing technics to use, older or newer ones depending on need. E.g. TCO, total costs ownership is not only considering the price, but lead and delivery times, defects per quantity, meeting commitments and quality of products. Make surveys and ask quality questions to the supplier. When you have done your surveys you weighed this result into your product calculation to estimate the correct purchase price. The geographical setup of your suppliers is also very important. It needs to integrate with your other operations and be linked into your business model. For example, to meet efficiency and large volume standard orders you could place you suppliers further away. The criteria’s are of course large order volume of lower value per unit and a high capacity utilization in your plant or in your supplier’s production plant. When the demand is more fluctuating and you need to be responsive then locate your suppliers closer to your customer or distribution centre.
Production and manufacturing
Important operational and order measurements are fill rates, order management costs, order fulfillment lead times, number of order by channels, number of line items and shipment by channel. Furthermore, again the aspect of geography and the approach of being efficient or apply a responsive strategy. This will affect your actions considering the geographical aspect. In addition, delivery lead times, percentage of invoices containing billing errors and order entry methods are also aspect to consider in finding the right strategy.
My thoughts on that: The geographical aspects mentioned earlier will of course also apply to this part of the supply chain. The demand and facility management will also vary depending on what business you are in. Furthermore, your suppliers need to understand the importance of getting your components in time and with the right quality, internally and externally. This is why internally you need to collaborate and work together within these processes. What could be a good thing to consider when your want to implement improvements and changes within your operation process, is to apply Lean and Kaizen methods. They are very efficient and productive, focuses on eliminating steps within your operations that are not adding any value to the business and will engage your organization and work towards the same goal. Furthermore, you need to decide on how much of your inventories should be based on efficiency and how much should be responsive? These decisions need to be based on your market demand and how your competition looks like. If you have a high development level with few standardized products then think about how you could design your product or product-portfolio so that it will fit the rest of your supply chain and to meet customer’s expectations. Invite your customer into your designer phase to get a better understanding of their needs; this will also put higher expectations on your operations routines and processes.
Delivery and operational management
Important operational and order measurements are fill rates, order management costs, order fulfillment lead times, number of order by channels, number of line items and shipment by channel. In addition, delivery lead times, percentage of invoices containing billing errors and order entry methods are aspect to consider finding the right strategy.
My thoughts on that: In the search of finding your triggers of costs and waste you need to consider the cause and effect approach. To better reach result on the measurements mentioned above you need to consider their causes. In this case it could be the geographical aspect and the choice of being efficient or apply a responsive strategy or maybe the right mix of them both could also be a successful approach. These operations are depending on each other and needs to be integrated. How many delays and errors could customer accept or should they accept any?
The need of a solid information system to support your supply chain is crucial, while it supports internal operations and also external collaborations with companies within your supply chain. There are several systems that could help you measure your performance and control your operations, ERP (Enterprise resource planning), Procurement system, CRM (Customer Relationship Management), SCM (Supply Chain Management) Inventory Management System and more. The technologies for the systems have been well known and companies have been using EDI (Electronic data interchange) and XML for many years and the last year’s focus has been on RFID (Radio Frequency Identification), Business Process Management BI (Business Intelligence) and simulation modeling. Today, cloud computing and how to use Social Media within your supply chain is the new approach many companies are looking at. Business oriented Social Media could be used from customer service and technical support to manage supply chain and execute joint marketing and sales campaigns. There are some interesting benefits accordingly: you could target your customer and audience better in a real time perspective to get a better outcome on what the customer are demanding.
Implementing Strategies and Goals
My thoughts on that:
After you have identified your problems, cause and effects and the triggers you have within your supply chain. Then start to set your goals and targets within the following categories, Customer Service, Internal efficiency, Demand flexibility and Production development.
- The next step is to implement them and categorize the strategy and actions on a Strategic (1-3 year), Tactical (1 month-12 month) and Operational (daily) basis. Gather the right people with different competences in different groups by mapping your operations according to your processes. Different department have usually different approaches and perspective on the same matter and this could be useful when you want to find the right solution. Everyone needs to be aware of the problem and work together to reach the goals.
Below are some more challenges and potential changes:
- Profitability challenges within the product portfolio, you don’t have enough standardized products with enough contribution or your fixed costs are too high and your service level is too low? Your new business model with more multichannel or Omni-channel solutions doesn’t integrate with the rest of the supply chain. Could you find the solution in the setup of your logistics to fit the need of multi-channel or Omni-channel? Should you have a separate distribution Centre or Warehouse for E-commerce or use the central ones that you have? A solution to the e-commerce setup could be using selected stand-alone locations as warehouse hubs and for pick ups. Should you use your own carriers or external services to increase your delivery speed or profitability? It could be a good idea to compare other carriers with the ones your using today since delivery times and expectations are getting tougher. For example, in a B2C context some companies are offering deliveries after just a few hours.
- When it comes to larger changes like moving factories, Warehouses or distribution centers due to being more responsive or efficient then try simulating these movements and operations. This is a good tool that could give your calculations and decisions more options and validation. You could then work on options for your order demand and plan ahead better to get control of your triggers of costs.
- Further challengers could be within the amounts of suppliers your company has, which gives them delivery delays or no volume leverage at the negotiation table. Should you use agencies or own sourcing to become more profitable? These are all questions and challenges that will need some analyzing with the tools and advises I mentioned above.
Source:(Hugos H.Michael. Essentials of Supply Chain Management, Third edition, New Jersey, John Wiley & Sons, 2011.)
In the next part of the blog about change management I will cover more about the market strategy and brand awareness.
Below you will find an Infographic on the trends within Supply Chain Management:
Trends within supply chain