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Tag Archives for " Corporate Training "

What is Chaining Today’s Corporations?

A divided organization cannot stand together for too long

Within the organization, division of labor was a fine concept when it came out. Obviously, if people focused on their individual area of expertise, in general they can be a lot more productive, if there is a robust mechanism to integrate the fruits of their labor. Unfortunately, the attempts to integrate conflict with the human nature driven by divide and rule from the top, and interdepartmental jealousies at the bottom. If someone gave me a penny for every time I have to listen to a mid-level manager tell me about how everybody else in other departments is under - performing, I would be a very rich man by now.

Most organizations became veritable bureaucracies as they grew bigger. Every person sat inside his/her own department, and was careful about making sure their department did not carry the blame if there was mix-up. Covering the tracks became the norm, and a rigid protocol was developed for interdepartmental co-operational. The resulting departmental silos create silted communication and a culture in which inter-departmental planning is simply not possible.

So what are the problems you might notice in such a divided organization?
We have worked so long on projects where we see these symptoms that it will probably take an entire chapter to explain each of these root causes. So, rather than dwelling too much on explaining each of them here, look out for the case examples embedded throughout this book and see if you can do a quick diagnostic based on these symptoms.

Too much rigidity in planning can lead to discord and disruption

A common tools deployed by most divided organizations to achieve integration was very rigid Enterprise Resource Planning (ERP) system to run their internal processes that co-ordinate inter-departmental communication. By their very nature such systems were very formulaic and prescriptive with a one size fit all approach to planning.

If you are familiar with internal operations of a large corporation, and wonder why you see so much chaos, anxiety, blamegame and other such dysfunctional behavior, this is the key reason. The systems are not setup for the type of operation. Again, I am sure you and I both could probably write a book full of case studies illustrating these types of problems. My purpose in this chapter is just to highlight what is chaining today's corporations and not to dwell too much on it. 

Of course, if you do think of an extremely poignant case study which stands far above those recounted in this book, do send them through to me for inclusion in a subsequent edition of this book.

Customers hate companies with too much internal focus

As organizations free up their inter-departmental planning from rigidities of prescriptive, monolithic systems the communications start to bloom, and planning becomes flexible, fluid and adaptive. Efficiency improves considerably and everybody is running together, faster.
However, a higher set of problems emerge due to lack of external focus - on suppliers, on customers and on end- consumers
. Many times everybody inside the company is running together, faster in the wrong direction. For a quick example take a look at Sony Corporation. Unhappy customers, slower product development, key new products missing the mark are symptoms of such problems as shown in figure 1.3:

Let us now move quickly to the macro-level picture

At a macro level, we will discuss only a few of the shackles that chain today's corporations and that too at a very high level. The aim of this discussion is to name a few hidden drags on corporate  and economic  performance, whose full impact may be difficult to recognize at a first glance. Rest of this book does NOT contain much discussion on these so it is important to put these on record here.
Why? 
  Because like it or not, you will face this in your business. And, whether you can do something directly or not, you will somehow have to overcome these drags. So, when you are reading the rest of this material and working out how to use it in your business, keep in mind these chains as well.

Complacency is a slow poison

The sense of entitlement, complacency and the imperial privilege can be observed even today in almost all the nations that once had a great empire - Spain, Portugal, Britain and France. Unfortunately, now the same feeling can be quite frequently seen in the United States, Australia and even Canada.
         There seems to be a belief among a large number of people that the world (or nature, or universe or some such entity) owes them a comfortable living, whether they do anything to deserve it, or not!

In the former imperial nations, this could be understandable because generations grew up hearing legendary stories of fabulous riches, derived from the empire where just being part of the winning team ensured a comfortable lifestyle. For example, Cecil Rhodes famously said "Remember that you are an Englishman and have consequently won first prize in the lottery of life." Spain, Portugal and France show remnants of decaying aristocracy that suffers from this mindset.

As a result, companies suffer from missed opportunities. Slow reactions, incoherent strategies, half-hearted execution and failed transformation. Most of the business in comfort zone and they don't recognize the need to go beyond, to actual create viable 5-star business to business network. 

Supply Chain Is The New Electricity – You Cannot Run Business Without It

Recently I did a small but quite interesting thought experiment with one of my sons.

We were discussing the invention of electricity and he asked me: “Dad, what would happen if there was no electricity?”

Since I actually had such an experience, I recounted to him my life in a remote village in Himalayas when my mother had taken a one-year assignment to teach economics to children in a school nearby.

I told my son that there was no internet, no computers, no telephones, no television, no radio and no light bulbs. Even more so, there was no electricity in that village at all. As a result, the whole village would get up at sunrise, go through their daily routines and were go to bed just after the sunset. People used kerosene lamps to light up for an hour or so after dark and only in case of necessity.

My son is only 8 years old, and grew up in Australia. Hence, obviously enough he found this life almost completely incomprehensible.

On my part, this conversation inspired me to think about life without supply chain management.

I have been lucky enough to have the opportunity of working closely with Dr. Wolfgang Partsch –  who is one of the co-inventors of supply chain management (SCM) in the early 80s. I have had a number of discussions with him about how the business life has changed compared to the life before SCM was invented.

No doubt, the division of labour was one of the biggest and most popular concepts which came out of the industrial revolution. The principle is that every job is divided into its constituent parts to the lowest possible level, so that each person can specialise in what he does best, this would increase the productivity of the overall system immensely. By the late 70s, the division of labour had totally taken over the business as well as governmental work.

Unfortunately, bureaucratic complications combined with the division of labour had created a world in which every department within any company was running as a small fiefdom.

Imagine that a purchasing clerk would issue a purchase order. Then he would let his boss know that he has issued the purchase order as per the boss’s instruction. Then his boss will countersign the purchase order and would inform his boss that such and such item has been purchased, who would then inform his boss, who would most likely be the head of purchasing.

The department head of purchasing would inform the head of manufacturing, who would inform his subordinate, assistant head of manufacturing, who would inform his subordinate, the factory manager, who would inform the manufacturing planner that the purchasing order had been issued.

There were 6 to 8 different links in this communication chain running from the purchasing clerk to the manufacturing planner or production planner. Each message would go up the chain in a department, right up to the department head, and then across to another department head who would filter the message down all the way to a person who would act on it. In such a world with these eight or more different links in the chain, the time difference by itself was enough for the message to lose its effectiveness.

Combine that timing issue with the possibility of a message getting garbled in a long chain of communication, due to the differences of intentions and possibility of misinterpretations of messages, suddenly you realize what a nightmare it would cause.

Not only that, the departmental heads were almost always the biggest bottlenecks in such a communication scheme where nothing would go up, down or sideways without a departmental head’s approval. Obviously, their capacity to process information was only limited by how much time they had.

Problems of the organization without supply chain management

Now before you think of this as a ludicrous, and imaginary situation – let me add that I encountered exactly this situation in an Island airlines where I had the opportunity to participate in a business transformation exercise a few years ago.

Many other organisations I have had the opportunity to serve exhibit at least some symptoms of the same malaise.

So, what would be the typical complications you could encounter if there was no SCM?

You would notice that some easy five-minute jobs could quite possibly take days to accomplish, for a simple reason of the lengthy communication chain required to get the cooperation. You would also see a lot of confusion, because of the possibility of the message getting misrepresented. You would see some coordination, but not a lot of it because of the nature and length of the communication chain.

You would see a lot of bureaucratic nonsense with people hoarding information and only giving it to their bosses or their subordinates in a very selective manner. In many cases, this information hoarding would be pointless and even harmful. The rationale behind the behaviour might simply be a cultural norm or an expectation in such a hierarchical organization.

You would also see too much command and control in this type of organization, for the simple reason that when everything has to pass through a departmental head, he becomes an ultimate arbiter of what information filters through and what does not.

You would also see that the departmental head would have to make all the decisions. Even the smallest scheduling decisions, or planning decisions, or execution decisions, which could have easily be made by people several layers lower than him/her, would need to be made by the departmental heads themselves, again for the same reasons.

You would also see such systems as very rigid with no adaptive capabilities to changing needs of the market place. If you notice any of these symptoms within your company, then there is bound to be a problem with how the supply chain functions in your company.

No matter whether you have somebody with a title of supply chain director or vice-president, your company does not act as an organization with an effective supply chain which cuts across the departmental silos.

As this is a very important subject, in another article I will talk about how supply chain helps to alleviate the silos mentality and integrate departments to act as one company.

Related articles

How To Find A Job

This blog post is relatively small and simple. Yet, as you will see, it is of immense use to anyone in today’s world. I do not want to make it any more complicated than necessary.

My friend Tony has a recession proof career. No matter what happens to the economy, or to his company, he seems to be always in demand. His last company went through a wave of retrenchments, and he happily accepted a payout. He was quite certain, something will show up when he wanted to rejoin the workforce after a short break – and sure enough, it did. This got me thinking, and finally I also spoke to him to find out his secret.

Here are the two keys to a recession proof career: As he says, this is easier said than done.

 

 

It takes years to earn the trust, and days to lose it. Millions of small things done well on a consistent basis day-after-day results in the type of reputation that he has developed. Yet, the primary quality has been to represent things in a very realistic light, and never fake them.

 1. Earn the TRUST for CARING:

agreementTony is known among his peers as a person of integrity who truly cares about his peers. He works hard to earn and keep their trust. He is well spoken, and only promises what can be delivered. While he does not take himself too seriously, people do take his word seriously. The net impact of all this is that people want him on their team because they know that he will contribute to his full capability. Over the past 14 years I have seen him accept bigger and bigger challenges on a consistent basis, and met these successfully. Yet, he has always been truthful about where he will need help in each case. This has allowed him to grow personally and professionally into the kind of person who is always in demand.

2. Become known for being better than anyone else in your field:

businessmen-in-a-rowCombined with the point 1 above is his sense of direction. He has become a go to person for his area of expertise. Over years I have watched him seeks assignments, postings, and projects that will develop his expertise and sharpen his practical knowledge. Rarely has he ever spoken about the pay-offs and bonuses from his postings and assignments. Almost in every case, his focus has been on how it will sharpen his edge and broaden his horizons. That slightest edge he has over others in his area of expertise is enough to tip the scale in most cases.And, that is why he never appears to anxious about his career prospects.

 

 

I will end this blog post here – because i have given the central message of this post. Only question outstanding is – how to do each one of these two things? I have written numerous posts that answer this question.

 

What Causes Supply Chain Confusion

My last post Supply Chain Confusion could kill your business generated several great comments from highly qualified professionals around the world, and in this post I want to explore the reasons for the confusion. Obviously, the confusion is debilitating, and unprofitable. I am sure readers will have their own experiences with the confusion in supply chain world, and can add to the discussion by commenting below.

1. Supply Chain Confusion created by service providers:

In my previous article I mentioned the examples of trucking companies (or warehousing companies) who have painted over their old trucks from XYZ Trucking/Transport to XYZ Logistics to XYZ Supply Chain Solutions without any material change in their capabilities or service offerings. While this kind of ‘branding’ exercise seems harmless enough, and most customers are not ‘fooled’ by such over-representation of the capabilities – it does have several deleterious effects. To give you an example – I was recently asked to answer a question on quora.com by a recent entrant into one of these companies who had entered the ‘field of supply chain’ to make a glamorous career. S/he was disappointed when s/he found that most of the work was rather mundane execution level work in transportation and warehousing. To exacerbate the situation they did not see any prospects of getting even remotely involved in the ‘sexier stuff’ such as supply chain modelling or business transformation. Evidently, then, this type is hurting careers, reputations and perhaps even the entire industry when these companies represent that what they do is all there is to SCM!

2. Supply Chain Confusion created by those who mistake the a small part for the whole (of supply chain)

No doubt strategic sourcing, logistics, warehousing, production planning, inventory management, demand forecasting all are parts of good supply chain management. Yet almost all of them are quite capable of representing that they constitute the entirety of supply chain management. Look at the way that a number of professional bodies have renamed themselves and pretend to represent the entirety of ‘supply chain’ professionals. Their antics remind of the ancient Hindu tale of 6 blind men which was so well captured by the American John Godfrey Saxe in the The Blind Men and the Elephant (Source: Wikipedia):

i. It was six men of Indostan To learning much inclined, Who went to see the Elephant (Though all of them were blind), That each by observation Might satisfy his mind.

ii. The First approached the Elephant, And happening to fall Against his broad and sturdy side, At once began to bawl: “God bless me!—but the Elephant Is very like a wall!”

iii. The Second, feeling of the tusk, Cried:”Ho!—what have we here So very round and smooth and sharp? To me ‘t is mighty clear This wonder of an Elephant Is very like a spear!”

iv. The Third approached the animal, And happening to take The squirming trunk within his hands, Thus boldly up and spake: “I see,” quoth he, “the Elephant Is very like a snake!”

v. The Fourth reached out his eager hand, And felt about the knee. “What most this wondrous beast is like Is mighty plain,” quoth he; “‘T is clear enough the Elephant Is very like a tree!”

vi. The Fifth, who chanced to touch the ear, Said: “E’en the blindest man Can tell what this resembles most; Deny the fact who can, This marvel of an Elephant Is very like a fan!”

vii. The Sixth no sooner had begun About the beast to grope, Than, seizing on the swinging tail That fell within his scope, “I see,” quoth he, “the Elephant Is very like a rope!”

viii. And so these men of Indostan Disputed loud and long, Each in his own opinion Exceeding stiff and strong, Though each was partly in the right, And all were in the wrong!

moral

So, oft in theological wars The disputants, I ween, Rail on in utter ignorance Of what each other mean, And prate about an Elephant Not one of them has seen!

Amusingly, the confusion in supply chain management also involves 6 different streams of thoughts.

There Are No Natives in This Land

Supply chain is a relatively new field. Especially at a higher level, there are no people who ‘grew up in supply chain management’.

Traditionally, supply chain professionals have come from one of the three or four streams in businesses.

  1. Logistics – 3PL service providers,warehouse staff, or internal logistics staff – also include people who confuse ‘logistics’ with supply chain’
  2. Procurement – or Sourcing, or strategic sourcing – also includes people who easily confuse ‘supply’ with ‘supply chain’3
  3. Production Planning – or Scheduling – also includes people who easily confuse ‘production planning’ or ‘sales and operations planning’ with ‘supply chain planning’
  4. Inventory Management – also includes people who confuse ‘inventory planning’ or ‘sales and operations planning’ with ‘supply chain planning’
  5. Materials Management or Materials Handling – also includes people who confuse ‘materials management’ with supply chain management
  6. Demand Forecasting – also includes people who confuse demand forecasting with demand management with supply chain management

I have worked closely with all 6 type of pedigree – and each of them have distinct foibles, strengths, weaknesses and biases.

One bias they all have in common is that they tend to have a soft corner for their own pedigree. For example, I spent my own formative years in shipping, logistics and transportation, and for some reason I am still a shipping person at heart. As they say once you spend time at sea – the salt water starts running through your veins.

However, all 6 type of pedigrees also have a great majority of people who are happy to represent their own specialisation as the entirety of supply chain management. That is what causes the confusion.

I could probably write an entire chapter of each of these 6 type of people, and their biases – including the impact of the confusion they cause to damage the profitability and ‘brand supply chain management’. But if you are from within the folds of supply chain management – you will easily recognise most of what I have to say here.

And, if you are not from with the folds of supply chain management then more explaination is no use to you – because you are better off reading my other articles on use of supply chain management for business transformation –  just search for those keywords in the search bar next to the tool bar on top.

I will cover the rest of the cause of confusions in my next post. These are rather esoteric models and we will raise the level of conceptual thinking a few notches in that article.

Related Reading:

  1. https://globalscgroup.com/supply-chain-confusion/
  2. https://globalscgroup.com/how/
  3. https://globalscgroup.com/the-single-biggest-mistake-in-business-transformations/
  4. https://globalscgroup.com/the-second-biggest-mistake-in-business-transformations/

Supply Chain Relationships- Partnerships Or Partnershaft?

By Stuart Emmett

Business & Relationships Business and supply chain management maybe technically simple, but it is usually managerially difficult. In supply chains for example, there are many technically simple solutions which give better business performance. There are also many “hard” technical systems approaches such as, MRP and SAP, which are most useful and can have a vital impact on efficiency. However to be totally effective, it is usually the things like teamwork, and motivation, which need the closer attention of management. Improving the people relationships is the main key for more effective supply chain management.

Do you for example know of any relationship, (business or otherwise), that cannot be improved? The financial lead view and hard side of business becomes an increasing difficult one to predict in fast changing global economies. Business can however, always look to improve. One way to out perform the competition is to improve people and the way people relate to each other. There are riches to be harvested here that will enhance and improve business and the quality of life.

A view that a company is able to do something by itself is a dangerous myth that obscures the reality that a company only ever does anything as a result of its people doing something. Too many people, usually unconsciously, ignore the plain fact that it is the people who are the key element in all companies. Surely, we can only ever do the core of business through dealing with people relationships? Looking at what has happened when company performance fails dramatically through receivership shows the importance of people relationships. Officially appointed receivers have identified the following three causes of failure:

  • Lack of information, meaning for example, a limited view of options
  • Lack of top team balance, meaning there is little “challenge” and there is negative compliance as boards are too similar and do not have the depth or breadth.
  • Lack of others opinions, for example an autocratic C.E.O. who goes only for say, growth. A one-man rule with non-participating boards is found.

It seems here that wider views from open debate were missing. Autocratic management has prevented any positive conflict of ideas. Company performance and profitability have failed and can be directly linked to the lack of open debate and considering wider viewpoints. If relationships had been improved, then the companies may have survived. Supply Chain Relationships Supply Chain Management has as its key principle, individual businesses coming together to integrate, co-ordinate and control, their supplier/customer activities of buying, making, moving and selling. Relationship handling with all the supply-chain players is fundamental to the overall supply chains effectiveness.

With people relationships however, how many times is the partnership word used only for “spin” and “public relationship” purposes? Traditionally, there is often found an adversary them/us tussle in the supplier/customer activities. Power is not distributed evenly; a major barrier to a full partnerships approach. Even however when there is a more partnership approach, (token or otherwise), this can result in a response from some involved, that the German word for partnership is partnershaft.

This is a reflection of the “you will”, “I win/you loose” viewpoints from this adversary point of view. However, some supply chains do demonstrate a share to gain approach. Here as a basic philosophy, they will recognise that “none of us, are as strong as all of us” and adopts a “win/win” approach. The use of power by the strongest does not dominate in these supply chains. The message can be a need for change from old to new ways. This message for supply chain management shows that the following changes in Figure 1 Supply Chain Changes, (a too brief overview), are needed:

From more Traditional Ways To more Supply Chain Ways
Independent of the next link Each link is dependant on the next one
Links are protective End to end visibility
Uncertainty in demand visibility More certainty
Unresponsive to change Quicker response to change
High cost and low service levels High service with lower costs
transactional partnership
Fragmented internal structures “joined up” structures of extended enterprises
Hierarchical management Collaborative management

The core of these changes, involves changing the way people respond and relate to each other. It is not only hard technical improvements that are needed and companies who see this as the only way forward are scheduled to face real difficulties and future failure in their expectations. Unless of course they are dominantly powerful so “opposition” does not matter. Developing effective people relationships will however, beyond doubt, bring benefit. It is the only eventual way forward to achieve better supply chain management.

Effective Relationships

Effective relationships fundamentally require a total open and trusting environment, with shared beliefs, values and a common identity and purpose. Mechanisms are needed to allow people the right to “agree to disagree” in a supportive and trusting way. The Supply Chain principle of “sharing to gain”, also needs to include differing people’s viewpoints with active listening and the encouragement of open debate. Developing such relationships is certainly not going to be a soft option.

Getting to the “inside” is not easy and can be time consuming and personally difficult to those who are “schooled” in old ways adversary and power based models of relationship handling. Indeed this “soft stuff” so often becomes the hard staff- especially for those who prefer a partnershaft view of supply chain management. Maybe however this is actually “saying it like it is” and is a better reflection of what actually is happening? Hopefully for those who have this partnershaft view, they do not really believe that people relationships in the supply chain is just more “people crap and has no part to play at all”, (comments from a former colleague).

Win the home games first

Effective relationship building needs to start internally. In my experience, the partnershaft view always reflects poor internal relationships. Here the best “knockers” of a company, and its “worst” ambassadors” are its own employees. Companies must “win the home games first”. A business must win on the inside before it can go outside.

Why so many companies appear not to realise this is a surprise.

An efficient and relationship mature internal team of purchasing, production, distribution, marketing, finance is often not found. However such mental preparation is a recognised pre-requisite for sports people, before their outside external and public performance. The battle here is frequently “won on the inside first” and without this internal alignment, going forward to develop external relationships can be fraught with difficulties.

What many internally focussed companies also do not often realise is that their internal divisions will certainly be reflected and be visible externally. External people will be then most rightly uneasy about the effectiveness of any so-called partnership. Where a company sets out as policy to not listen or involve its “partners”, internal or external, then clearly the partnership word should not be used. Using it in these circumstances is dis-honest.

The critical thing to be done before developing external supply chain partnership relationships is to “win the home games first” and to engage the hearts and minds of the employed and contracted; individuals, groups and teams, inside the company.

Can We Agree To Disagree?

To be able to win the home games first, many organisations need to fully recognise that they actually do have people at all levels in the organisation, which do actually go along with events, which they actually disagree with. This is, maybe because they do not want to rock the boat. They have discovered it is safer to keep their head down. Indeed, as noted by the management guru, Peter Drucker, the biggest single hidden aspect in most companies is fear.

When there is such a “going along with syndrome,” then this is really negative for an organisation, as well as for the individuals concerned. The following case study, Figure 2, The ABC Ltd Problem, explores this issue.

Figure 2 The ABC Ltd Problem

  • F (the C.E.O. of ABC Ltd) takes pride in the company mission statement about the positive open communication with everyone pulling together to create new opportunities for the benefit of the customer.
  • G (a senior manager) sees his job is all about exploring new opportunities and that problem are “negative” barriers to this end.
  • H (a middle manager) is keeping quiet about a staff problem, as G never wants to hear about problems and has said before in similar situations to H, that he is a troublemaker who is rocking the boat and needs to stop being negative.
  • I to K (all clerks) have all just left ABC Ltd. They resigned as they felt they could no longer work for a company that will not listen to their concerns and problems and which stopped them from providing service to customers.
  • XYZ Ltd. (a major customer) confirms they are placing orders elsewhere, as they cannot get answers about delayed orders since I to K have left.

What would be your answer to the “problem”?

The simple answer is to say it’s a communication problem. Well for sure, it is a “communication problem” and one answer is to have the C.E.O. to get everyone to talk to each other. But it is deeper than this. Staff has left and an important customer has gone elsewhere, so something more “radical” needs to happen! Discussions-a core element in organisations Discussions and interactions between people are the core component in most organisations. These discussions take place take place at many levels, both internally, between employees/ employers, and externally, between suppliers/ customers.

If such discussions are stifling, restricting, and limiting; then this can result in stagnation, a refusal to learn and change and a refusal to do things differently. To overcome any such difficulties in any people business process, then it must be understood that conflicts, challenges, and compliance are all related interactions. These are important aspects to be efficiently managed and understood.

Challenge and Conflict

As perception is reality, then the words and style used in discussions and interactions, may mean that any “challenges” can be perceived by the giver, as being constructive; however, the receiver may perceive “challenge” as causing conflict. (By conflict, I am meaning the conflict of ideas and not conflict between people, conflict here is meant to be an open disagreement on ideas-I am not in any way taking about any conflict of verbal or other types of, violence!) The following case study, figure 3 Research Findings, will help to clarify my view.

Figure 3 Research Findings

When talking with employees in different companies, researchers noticed that some employees said they avoided conflict whenever possible in discussions, while others seemed to thrive on conflict in much the same circumstances. To confuse the researchers even further, those who seemed “positive” about conflict seemed to perform better in many respects in their jobs (and in overall organisational performance) than those who discussed conflict “negatively”.

Probing further, the researchers found that different people (and organisations) used the term conflict in very different ways. For some, those whom perceived conflict as negative, conflict was personalised and represented destructive personal tensions. For others, those who viewed conflict as positive, conflict was simply an intellectual disagreement to be resolved and had no relation at all with their feelings about the other party. The first approach can be called conflict among people (or destructive conflict) and the latter, conflict of ideas (or constructive conflict). Many people however, will still not like the word conflict, as it will be associated with aggravation and unease between people.

But this is just one possible side, as conflict has positive and negative sides, one which can be both creative and constructive or one side that is, feared and destructive. When conflict is creative, it explores differences and is not a concentration on only one position. Creative constructive criticism can take and build up from a newly discovered “third” position. Here both parties may concede to win or to loose. There will be a common cause, perhaps with tough trust and where “truth” comes from debate and discussion amongst equal friends. When conflict is feared it is so often because it has become personal. This will often happen when partners are treated as being unequal.

Unresolved differences can go onto create stand off’s, which can continue with destructive outcomes, and perhaps even end with “taking the ball and bat” home! (Whoever said that grown ups are children in disguise, was surely right). People can “withdraw” and “curl up into their shell”. They may well comply and “go along” with things. However, this is not really very helpful over the medium term, as it works like an internal cancer, attacking company mission statements about developing positive relationships between people.

Challenge and Compliance

When two people discuss and “face each other”, then without any challenge, there will only ever be an outcome of compliance. Now such compliance may be fine if it is genuine and agreed by both parties, and it may also be fine, if it is has followed from a useful dialogue of constructive criticism. But, positive challenge is needed and is definitely helpful, if there is to be any learning. “Blind”, forced, or negative compliance is really no use at all to anyone wanting to develop and to grow.

When there is only negative compliance around, then there is little learning, as there can be no real change from the current position. With negative compliance, for example, people will learn to keep quiet and cover up anything that will expose them when they put their head over the parapet. Mistakes will be hidden, as this is no place to be where you can learn from mistakes. Furthermore, negative compliance can be covert with “unspoken disagreement”. It can exist amongst unequal partners where, one of the parties does not “want to rock the boat”. The following, figure 4 SCM Ltd., views this further:

Figure 4 SCM Ltd

The managing director of a successful component manufacturer (SCM Limited) has a very simple human resources policy: hire winners and fire losers. In practice being seen as a loser by the MD means demotion, or at worst, termination. Unfortunately, this MD is on a rather short fuse and any employee seen making a mistake will always be a loser. Consequently, the clever employees learnt many astute ways of covering up failures, even when they were genuine ones.

As a result, problems tend to appear too late, when nothing can be done about them. The MD then has to step in, fix them as he can, and look for a scapegoat. He keeps complaining that he spends his time fire fighting rather than dealing with fundamental strategic issues. Effective challenge and conflict is needed to open up differences, as differences can be essential to learning. (The MD, above, for example, needs a good mentor or coach so that the differences can be positively explored). Here each party will be encouraged and supported to arrive at a place and position where there is a mutual awareness of differences.

This then leads to debate and onto a greater level of understanding, finishing perhaps with a compromise where both parties may have conceded, so that they both can win. When this type of challenging approach is used, then it prevents any compliance of false agreement. Here one side thinks it has “won”, or the other side has concluded, “why should I bother, they always want to do it their way?” With negative compliance, each remains with its own position. The others viewpoint is not listened to – there are no seeing the third position. Without any positive compliance, there will be no long term developing and no growth, no learning and no changing.

Yet, some people will foster negative compliance. The employees in the last mentioned case study above are for example, fostering compliance, (although they probably do not see this). This is possibly happening because they do not like the personal conflict, which they see as destructive. Also, the MD is fostering compliance through his personal style and approach, (although he probably does not realise this). Furthermore, some will like negative compliance, as they want to remain where they are, as they do not want to change. Some will also continue to steadfastly not “give up” their position as they cannot “loose face”.

What can be done?

There is clearly a need to expose, with challenge and conflict, the compliance issue. All the people involved, (internally and then externally), need to be clear and agree on the following definitions:

  • Positive conflict

Is constructive as it enables new learning through an open disagreement and discussion on ideas between people. The outcome is either a full agreement about the others position, or, finding a new “third” position. All those involved believe they have gained something from the conflict process.

  • Negative conflict

Is destructive as it inhibits new learning through creating personal tensions among people. The outcome is on “one” position only. Those involved are usually divided, as whilst one side may feel they have gained, the other side feels they have lost something.

  • Positive Compliance

Encourages challenge and conflicts and recognises these are needed for effective learning and changing. People are actively involved in shaping the outcome from a mutual awareness and understanding of the differences. They can change their position in the process.

  • Negative compliance

Encourages blind or forced agreement which hinders effective learning and changing as open challenge and conflict on any differences from the “status quo” are not encouraged. One party remains uninvolved and keeps quiet with “unspoken disagreement”. This gives a “false” agreement, which can encourage mistakes to be repeated, and little change brought to the “status quo”. People will internally remain with their own position, even thought this will unlikely be externally expressed in their false agreement. After understanding the above definitions, then people need encouraging to use and adopt such practices in internal business relationships.

New learning (and changing) is needed. However without any changing, then it will be no surprise that challenge, conflict and compliance issues are often going to be dealt with in a negative way-as the case studies have shown. Effective supply chain management will clearly be a myth for some of the partners and players. There is quite a challenge here, I believe, for most companies, organisations, and many of the people involved. However, in promoting efficient and effective supply chain relationships and going for the “prizes” available, then the challenge has to be faced and overcome – with positive conflict, of course!

Perception is reality

A problem can however still remain. Simply that I believe in dealing with “managerially difficult people”, or by using “partnershaft people management techniques”, that too many managers are just too content to gloss over developing longer term effective people relationships. The “macho kick ass manager” is still around and thriving in short term heavily task oriented business. The contrast between “old “and “new” managing is distinctive, see figure 5.

Figure 5 Old and New Managing “Old” managing represents: – keeping control – holding onto people – being judgmental – “telling” – seeing though a “pinhole” – being directive and more autocratic – using a “push” approach – Mechanistic view of people, they are only a resource.

“New” managing, (some call it leading, coaching, or empowering), represents more of the following: – letting people try – given people a “self release” – being non judgmental – “selling” – seeing the wider view – being supportive and more charismatic – using a “pull” approach – Collaborative view of people, they are what bring innovation and improvement. It is important for a business to have its manager’s face up to viewing these differences and to recognising the ensuing problems and opportunities that occur from the application of the different models. It is critical for individual managers to see just how they look at things, and then to be prepared to change their view.

This can be a most difficult from of learning for many managers. When we view people, we have our “fixed” perception, which can, in effect, block our view. Therefore, if we are able to see differently, we need to change our perception. Remember that perception is reality. The way we see, leads to what we do and what we do, leads to the results we get. So to change the results, we really do need to change the way we see! To help view our own reality of how we manage people, it is useful to take a polarised view, so that we can focus on two “opposites”. After such a “black and white” view, we can then search for the “grey” if we want to. Let me, therefore, put forward another such a polarised stereotype of people that says people run on emotion but justify things by calculation. In other words:

  • The emotion view is seeing people as more “heart”/feelings based. It’s all that “soft stuff’ that is “gut feel” and subjective. It’s “touchy/feely” and not at all, what a “macho manager” or partnershaft supply chain manager likes to deal with.
  • The calculation view is, however, a more “head”/logic based view. It’s the “hard stuff’ that can be proved/quantified and is, therefore, more objective. It’s all those who say, “The numbers speak for themselves”.

I would accept this looks just too “black and white”. I know in the real world we are often more in the “shades of grey” zone. But we have to start somewhere and I am suggesting we should try and start with a polarised view and spend some time looking at the “soft stuff”. I believe it is all this soft stuff that is really the hard stuff. It is not the “technically simple” that causes us major problems in supply chain management, it is that which is more “managerially difficult”. But to get into this, we need to have a view of “where we are at”. We need to be able to have the confidence to view which side we lean towards. Is it the “Emotion Soft Stuff’ or the “Calculative Hard Stuff’?

Are we, ruled by the heart or by the head? It is my belief that these stereotypes view is sound. For me, business heavily involves emotions, (usually though covertly as, after all, it’s not macho and not British for us to show emotions). The calculative “bottom line” is, however, usually more overt. But the “bottom line” is only ever going to an outcome of all the other activities, which for example, involve people showing each other “touchy/feely” mutual respect and trust in their business relationships. So emotions, feelings, behaviour and thinking are all related.

After all, as a person thinks, so they are! Business is, therefore, at its roots, an emotional experience. Trying to pretend people’s emotions don’t exist in business relationships is dangerous. It ignores the way forward to develop better and more effective supply chains for all the partners and the players. To make supply chain management with partnerships a reality for all the partners and players, then we must fully consider how the people relationships are to be handled. To ignore such relationships is folly and frankly plain “daft”. Unless of course, the ending point is not for partnership at all, but for old style supply chain partnershaft.

All written by Stuart Emmett, after spending over 30 years in commercial private sector service industries, working in the UK and in Nigeria, I then moved into Training. This was associated with the, then, Institute of Logistics and Distribution Management (now the Chartered Institute of Logistics and Transport). After being a Director of Training for nine years, I then chose to become a freelance independant mentor/coach, trainer, and consultant. This built on my past operational and strategic experience and my particular interest in the “people issues” of management processes. Link for the blog: http://www.learnandchange.com/freestuff_23.html

Tendering – The Only Way?

Stuart EmmettA serious look at Tendering by Stuart Emmett

One of the key activities of procurement is to obtain acceptable agreements with suppliers by using the tendering and the negotiating processes. However, which of these two processes is best and why do some organisations use only tendering, whereas other organisations, will only negotiate? Let’s therefore briefly consider the negotiating and tendering processes further in the following sections:

What is Tendering?

Tendering is defined as: “The procedure, by which potential suppliers are invited to make a firm unequivocal offer of the price and term which, on acceptance, shall be the basis of the subsequent contract” Tendering is a formal process involving the following steps:

Those tenders received by the nominated date/time, will then be assessed, both technically and commercially, against the required criteria that has been specified in the ITT and at this stage; any offers that do not meet these criteria are eliminated. The objective of the tender assessment is therefore for the purchaser to establish which the best offer is. These assessments will normally cover the following aspects:

Technical assessment

Commercial assessment

Compliance with the specification (either a conformance specification or a performance specification)

Price

The required output parameters will be met

Any other commercial qualifications such as terms of payment

Product/service quality

Perceived risks such as supply lead times

For equipments, the maintenance/ repair over the operating life

Value for money

If price is the only selection criterion, then the tender with the lowest price will be awarded the contract; however where price is only one criterion among several others, such as service, lead time, quality etc; then the purchasing organisation will need to decide the most economically advantageous tender (MEAT) or, which one represents the best value for money (VFM). The result of the assessment is therefore to rank the tenders either by price, or in accordance with assessment criteria and these which could be specified in the ITT.

This establishes the lowest assessed tender, which is then recommended for the award of contract. The tender specification in the ITT must therefore be clear, unambiguous and allows suppliers to make an appropriate offer. In summary, tendering aims in a single round of tendering to obtain compliant tenders from qualified tenderers by allowing for open competition and fairness. What then are the perceived disadvantages of tenders?

Tendering may not always give the intended open competition and fairness; yet these are the major reasons for its use. Indeed tendering may be merely “going through the motions” as tendering processes can be influenced by those who have power and influence over the eventual selection process. Tenders may also be selectively issued with suppliers’ responses then being clearly influenced. Additionally I am also reminded of a procurement manager who once said to me, “we are always able to pre-cook the tender board.” The private sector, for example, will usually disregard tendering completely and after selecting suppliers, moves straight to negotiating. They see the following disadvantages of the tendering process:

We will further consider the above aspects later; meanwhile let us explore the negotiation process. What is Negotiation? Negotiation can be defined as “the resolution of conflict through the exchange of concessions”. This will mean trading concessions, not donating them, and can also only be undertaken with people who have the power to vary the initial terms and are able to give something in return. In other words, all the players have to be prepared to negotiate. The advantages of negotiations can be seen as follows:

Disadvantages of negotiations are seen as below:

Conducting negotiations is a skilled process and whilst there are available some ideal guidelines, it cannot be thought as a strict procedural process; indeed some observers observe there are really few rules involved. As it is a process conducted by people, then, personality and cultural aspects are also involved where for example, negotiating with Koreans is different to negotiating with Germans. Negotiating is a skill that needs to be learnt and developed. Whilst it is commonly found that supplier’s sales people are trained in selling and negotiating, perversely and regrettably, buyers are often not trained to negotiate. Suppliers are one side of the buying process In the buying of products/services, the position of the supplier in the marketplace should be considered; this often being something that is not systematically considered by all buyers. There will often be other buyers for products and this may mean the supplier takes a view of how “attractive” the buyer could be as a customer. Indeed, there may be several reasons why the buyers appear unattractive to suppliers including:

Additionally, the number of available suppliers may be large or small, for example, markets may be expanding or contracting and buyers therefore need to be aware of the expansion or contraction of the supply market from which they are procuring. It should therefore never be assumed by buyers that every supplier is “desperate” to supply them with products or service. Suppliers have a view of their market and this will affect a suppliers positioning towards buyers; for example the suppliers view maybe one of the following: Clearly not every purchase has a supplier who views the buyers business as being a key account for the supplier.

In view of these differences then all buyers can usefully consider: Question 1, just how does my supplier view me? They may be surprised by the answer and that they are not, universally, going to be seen as being a key account; indeed, they may be seen as a nuisance. Additionally, related to this, is the power of each party has, for example: Where the buyer is dominant there is:

Where the seller is dominant there is:

All buyers can therefore usefully consider;

Question 2: what power relationship is there with my supplier? The following gives one possible summary from asking and answering the above two questions of the supplier base

Suppliers name

Q1) Suppliers view of us

Q2) Power relationship

Supplier a

Key account

Independent

Supplier b

Exploit

Supplier dominant

Supplier c

Nuisance

Interdependence

Supplier d

Development

Buyer dominant

Supplier etc

Etc

Etc

This matrix shows there will be varied responses and whilst some will “match” (e.g. b), others will not (e.g. c).

We can ask:

Question 3: What are the implications of these two views?

Simply here, the answer will reveal that there are varied requirements from buyers and suppliers, some will align, and some may not. We can explore this further by looking at the 5 rights of purchasing related to the well known Kraljic item portfolio. With Kraljic we can see that buyers have a hierarchy of requirements and this is shown below:

The Right

Bottleneck and Critical items

Aim: Secure supply and therefore , lower the risk of non supply

Routine and Leverage items

Aim: Reduce price by playing the market, possible outsourcing etc.

Quality

Secondary

Secondary

Quantity

Secondary

Secondary

Time

Number one requirement

Secondary

Place

Secondary

Secondary

Cost

Secondary , maybe last

Number one requirement

From the buyers / customers and demand perspective on the cost / service and the supply balance, then the following ideals are indicated:

The ideal matching response from the suppliers and supply perspective, related to Kraljic, is then going to be as follows: This can be amplified further into an ideal typical perspective, as follows:

Service

winner

Buyers

Strategy

Matching Supplier Behaviour

Suppliers

Market position

Responsive

Leverage items with Supplier Sourcing

“Plays the market”

React rationally with price cuts

Certainty of

competition

in the short and long term

Reliability

Routine items with Supplier Outsourcing

“Organises and lets go”

React by exploring options and “fit”

Certainty of

competition, in the short term, followed by stability in the long term

Innovative

Bottleneck items with Supplier Development

“Secures supply

and attempts to diversify”

Reactive positions when maintaining the monopoly, or,

Proactive entrepreneurial behaviour with new product designs

Uncertainties

of being able to innovate, high R&D costs, followed by possible monopolistic position

Empathetic

Critical items with Supplier Collaboration

“Work collaboratively with suppliers”

Proactive team work and problem solving

Uncertainty initially (forming-storming) followed by norming and long term performing

The question to be asked now is as follows:

Question 4: Will the above mentioned supplier behaviours line up with the buyer’s strategy?

Where there is congruence, there is agreement and progress forward will be easier, as both buyer and supplier will have their needs met. If there is no congruence, then there are possible negotiations options and whilst positions may be then changed, the outcome could be an eventual “no deal.” Where however, no negotiation is allowed, then there is really no hope of having a satisfactory relationship and any progress will always be problematic; for example the supplier wants to be innovative and service driven but the buyer is price playing the market and is cost driven. Indeed with tendering, then it is unlikely the supplier is procedurally able to offer innovative alternatives.

May be here therefore, the suppliers only hope of winning a tender is to submit a low price that will “fit the tender” and hope that their alternative can be offered at some later time, once they “in”. Clearly here, it will be the appropriate behaviours by either party that are therefore affecting and driving the supplier/buyer relationship. This should be readily easy to accept with for example, the well know scenarios of “you get what you give” or, “what you give you get”, and “what you sow, you will reap”. However as we will see with our next question, acceptance of this, does not systematically lead to changing behaviour towards making more optimum buying / supplier selections.

So our final question for buyers is as follows:

Question 5: if the buyer’s strategy is using tendering 100%, will this give them 100% effective results?

Which is then going to be the best to use, a tendering or a negotiation process? It would seem so far that leverage and routine items may well find a better fit using competitive tendering, whereas bottleneck and critical items are more likely to get better results from with negotiating. What fundamentally do Suppliers & Customers want? So now we have seen what fundamentally tendering and negotiations involve and how they relate and vary with each other in a practical way. If we were now to simply view what the supplier and the customer wants, then we can see the following positions: Source: “The Relationship driven supply chain” Emmett and Crocker (2006)

Criteria

Suppliers want:

Customers want:

Orders

The “business”

Delivered/available goods/services that satisfy a requirement

Information

Clear requirements

Wants clear status information

Performance

Feedback

(KPI’s that are jointly measured and, benchmarked with other suppliers)

“Feed-forward”

(Pre-advice and proactive status/alerts)

Relationship approach

“Fairness”

Involvement/“Part of”

Relationships may be a reflection of the procurement portfolio and power positions

Price/Cost

A “fair” to a high price

The “best” total acquisition cost, total cost of ownership, life cycle cost, whole life cost (TAC/ TCO/ LCC/ WLC)

Quality

Clarity on what quality means and what is “valued” by the customer

“Fit for purpose”

Delivery

On time, in full (OTIF)

On time, in full (OTIF)

Quantity

Large regular orders

Smaller, frequent deliveries

Time

Acceptable supplier lead time

Shortest supply lead time

Place

Ex Works (International)

or

Factory Gate Pricing

(Domestic trade)

Delivered domicile duty paid, or

Delivered/Carriage paid

Payment time

Prompt

To negotiate

This indicates that there are some very common “wants.”

By exploring the above common wants, then this facilitates potential mutual benefits and gains. The point here is, will these benefits and gains, come from a tendering, or from, a negotiating process? Summary Let us now summarise the relative advantages and disadvantages of tendering and negotiating Advantages of tendering

Aspect

Tendering

Whereas Negotiations

Openness

Open to all suppliers (in theory) and often with some visibility of results

Open to those approached only and this is usually confidential

Supplier Competition

Competitive between those suppliers invited / submitted

Competitive between those suppliers negotiated with

Auditable

Auditable

Not easy to audit

Procedures

Procedural and routine , therefore it is more of a rational process

Non procedural and needs skilled trained people.

It is an emotional process with some rational judgements

Outcomes

The lowest price or best value for money, and this is “fixed” for the prescribed specification

Easily allows for joint working on solutions for the best deal possible, (for both parties)

Kraljic best fit

Leverage and routine items

Bottleneck and critical items

Power relationship

Buyer is dominant or is independent from supplier

Supplier may be dominant or there is interdependency of buyer and suppliers

Cost/service balance

Cost is usually the prime requirement with possible “value for money” service aspects, (providing these are in included in the specification)

Service supply is prime but allows for cost/service trade offs in the negotiation

Disadvantages of tendering

Aspect

Tendering

Whereas Negotiations

Clarifications

Cannot always clarify technical points

Can more easily clarify technical points

Specifications

Fixed specification is given, therefore the supplier cannot easily suggest any better alternatives

Supplier can give better alternatives and jointly work on solutions with buyers

Limited usage

No use at all with a “monopoly”

Can use with a monopoly

Cost and time

Slow and expensive

Expedient and cheap

Approach

Conflicts with “newer” collaboration approaches as is a prescriptive approach

Skilled and varied approach can be used

Suppliers invited

In theory is open but can be “fixed” e.g. only certain suppliers are invited.

Additionally, suppliers may refuse to be involved in tendering

Can also be “fixed” but most suppliers are prepared to talk/negotiate

Suppliers view

Supplier has “one shot” to get it right

Many opportunities and meetings are possible

Conclusion This raises the final question for all buyers to consider: Which is best, tendering or negotiating? The answer will be found in the above discussion; it will depend on the circumstances, however it will be seen that the “one size fits all” approach of tendering is just not going to be the most effective. Whilst the advantages of tendering, in theory, do seem to be rational; tendering remains questionable in practice, for example:

Of course, mixed tendering and negotiating may be used, for example some organisations use tender procedures to cover the technical assessment/compliance, and they will then negotiate on the commercial aspects. However, if we can assume that we will be using honest and ethical negotiators, then it seems very clear that it is negotiating that will offer the overall best approach. This is further supported by observing, interestingly, that it is the public/ government organisations that generally will only tender whereas, the private commercial sector rarely tender and systematically use negotiating. Which of these two sectors is the most commercially efficient?

For those who choose to believe it is the public/government organisations then please consider that we have seen Government, successively, move the utilities into the private sector in recent decades and more recently, place much of the NHS procurement into the private sector; (all this being done of course whilst retaining some regulation). One assumes this is done so that they can become more commercially competitive and also benefit, for example from, better procurement practices? This is not to say that we cannot use both negotiating with some tendering as for example, tendering may be useful for the purchase of leverage standard items.

However even here, tendering has been replaced by reverse e-auctions in some leading edge organisations; reverse auctions being a classic application for leverage items and also simplify the award process for the benefit of both parties. In conclusion, given a free choice between tendering and negotiating, then tendering, overall, is just not going to be the best practice. As far the UK is concerned, the sooner the government realise this and release the talent of procurement people, the better for the tax payer. Indeed in the words of Sir John Egan in “Rethinking Construction” (1998); “Industry must replace competitive tendering with long-term relationships based on clear measurement of performance and sustained improvements in quality and efficiency.” Clearly this involves replacing tendering with sitting down and talking and negotiating. It has to be the right thing to do.

All written by Stuart Emmett, after spending over 30 years in commercial private sector service industries, working in the UK and in Nigeria, I then moved into Training. This was associated with the, then, Institute of Logistics and Distribution Management (now the Chartered Institute of Logistics and Transport). After being a Director of Training for nine years, I then chose to become a freelance independant mentor/coach, trainer, and consultant. This built on my past operational and strategic experience and my particular interest in the “people issues” of management processes. Link for the blog: http://www.learnandchange.com/freestuff_23.html

 

Retail Supply Chain, In Response To Online Onslaught, Brings More Power To Discount Stores

Retail Supply Chain is Going Through a Massive Shift

As the US economy staggers and consumers remain austerity-oriented, dollar stores or discount stores are presenting a more viable model in retail supply chain.

So much so that big names such as Walmart has decided to adopt the “bargain” strategy by opening smaller stores.

Shopping centres in North America are witnessing an influx of bargain store chains, prompting a fall in vacancy rates at these shopping complexes to 8.6% in 60 major US markets last year. The figures came from Cassidy Turley research, who also noted a “seismic shift in retail shopping centers.” Over the past three years, bargain retail brands such as Dollar General, Dollar Tree, and Family Dollar have opened an average 2,000 new stores each.

Meanwhile, big names in US retail such as J.C. Penney, Sears, Staples and RadioShack are in a precarious situation where they draw traffic to smaller stores nearby. The two latter companies even announced earlier in March their plans to close a combined 1,325 stores. “The challenges of the weak economy are being replaced by the challenges of e-commerce,” said Garrick Brown, director of research at real estate firm Cassidy Turley.

“Dollar stores have just had insane, insane levels of new growth.” “Online retail undoubtedly has snatched some sales away from brick-and-mortar stores but the heat seems to be at the discount store sector.

THE-5-STAR-BUSINESS-NETWORK-Book-Cover1“However, bargain stores have an opportunistic supply chain with an unstable stocking model. With little supply chain planning and low margins, can they sustain their growth over the giants once the latter figure out how to catch up, or expand?” said Vivek Sood – CEO of Global Supply Chain Group.

Already, Walmart has started to tackle small discount stores by planning to open 300 new Walmart Express and Walmart Neighborhood Market stores by the end of this year. This came after the US giant posted lacklustre results in the last fiscal year, with a 3% drop in consolidated operating income, a 0.4% drop in sales during holiday shopping months and a 1.7% fall in foot traffic during the period.

It is even more challenging for Walmart as the American Customer Satisfaction Index (ACSI) indicated the lowest score for the giant as both department and discount retailer in 2013. Meanwhile, dollar stores scored very high in the ACSI survey.

“There’s room for manoeuvre as Walmart can utilise its vast business network and supply chain power to further segment its customer base and cater to their needs more efficiently. With the recent opening of hybrid and smaller store format, Walmart may be able to win customers on their fill-in shopping trips,” said Sood, who also wrote the “5-Star Business Network” book.

The key thing to remember is that the three retail supply chains – for traditional box retail format, for online retail and for discount stores – are widely different.

Online retailers can operate like 5-STAR networks working to secure customer orders on one hand, and the cheapest source of supply on the other hand. Matching supply to demand in the most profitable manner can allow to optimise profitability on every transaction if they know how to handle big data.

Traditional box retailers have a very traditional planning and control based supply chain based on forecasting demand and trying to optimise fulfilment most cost effectively. With eroding pricing power, traditional supply chain model is under intense cost pressure leaving the door open for online retailers as well as the discount retailers.

Discount retailers have an interesting supply chain model. Opportunistic purchases, shifting product mixes, end-of-the-line clearances and one-offs dominate the supply chain model. Lower prices attract customers and impulse purchases enhance the margins. That is driving the growth of this sector. However, this supply chain model depends on the weaknesses of the traditional retailers and cannot replace them, and therein lies its biggest weakness.

So, what can we expect?

Expect the traditional big-box retail to survive – though in a pared down, more expensive version of the current format.

Discount retail will remain a high growth, yet shifting format.

And online should continue to grow briskly as per the trend. It will be interesting to see what actually happens. This is not a clash of businesses – it is a clash of business models.

 

 

Use Monte Carlo Simulations To Quickly Model Costs And Influence Stakeholders

hudgeon12By Doug Hudgeon

The Cost Reduction Tip

Taking your business down to its lowest possible operating cost typically involves changing (usually simplifying) processes. When preparing a business case for changing your current processes, it is usually easy to nail down system costs but people costs are almost always problematic. Even if you believe you can calculate them accurately, your stakeholders will each have their own views on the assumptions underlying your cost model and this can result in an impasse.

I like to use a Monte Carlo simulation to model people costs. It enables you to quickly calculate a range of costs for activities that can encompass the conflicting views of your stakeholders.

Here’s how I do it:

I’ve prepared a sample Monte Carlo simulation in Google Spreadsheets that you can review online and download as an Excel file.* Because the values in this file may change as I run different scenarios, I have taken a screenshot of the current settings and labelled the components of the spreadsheet. Please click on the thumbnail image to follow the discussion below but refer to the Monte Carlo Simulation Google spreadsheet to explore how it works in detail.

Note that I have prepared a subsequent post that takes you through the spreadsheet in some detail and, for those who are fire walled from Google Docs, please click this link for an Excel version of the Cost Analysis Monte Carlo Spreadsheet

Monte Carlo Simulations The first column (1.) shows each of the activities that will be modelled. In this case, I have set out seven steps involved in manually processing a PO and paying the resulting invoice. The next three columns (labelled 2, 3, and 4 in the thumbnail image) allow you to enter assumptions against the time taken to perform each activity

(2.), the fully loaded cost of the resource performing the work

(3.), and the number of transactions per month

(4.).In the above screenshot, you can see that Activity “1. Create requisition” takes between 1 and 3 minutes to complete and the fully loaded cost of the resource creating the requisition is $90K to $110K (assuming some pretty significant overheads for this resource!). Each month, the organisation prepares 10K to 20K purchase orders.Running a Monte Carlo simulation over these variables (FTE utilisation: 130 hours per month) results in this activity costing somewhere between $12,382.44 and $35,681.69 with a 90% confidence level

(5.).The last 5 words of that sentence are pretty important. When you are setting your variables for activity time, resource cost and number of transactions per month, you want to set the minimum number so that 95% of the values will be above that number and the maximum so that 95% of the values will be below that number. For example, in activity 1 when I said that the activity takes between 1 and 3 minutes what I mean is that 90% of the transactions I observed take between 1 and 3 minutes i.e. 95% of the transactions took 1 minute or more and 95% of the transactions took 3 minutes or less. If I am confident that this is correct for each of the values in the yellow highlighted area of the spreadsheet then I can expect that 90% of the time, my conclusions will be correct.**

Now, back to our stakeholder question: When you are speaking with your stakeholders with your Monte Carlo simulation in hand, you can explicitly discuss each assumption and, where the stakeholder has better information than you, immediately incorporate their information into the model and see the impact on the business case. If your business case still stacks up after this process then you can proceed confidently knowing that your stakeholders understand the numbers and have had their input incorporated.

* A Monte Carlo Simulation is an approach whereby you nominate an upper and lower limit for each activity and generate random results (in this case normally distributed)

** You’ll note that the Totals (6.) do not equal the sum of the 5th percentile or the 95th percentile. This is because simply taking the sum of all of the 5th percentile activities does not give you the 5th percentile overall – it gives you lowest cost for activity 1 plus the lowest cost for activity 2 etc. The value displayed in the spreadsheet is the 5th percentile of all 7 activities combined into a single transaction.

Doug Hudgeon who is lawyer and vendor management professional who has branched into finance and accounting shared services management.

Challenging Leadership Principles

By Stuart Emmett 

This article puts over what I see as essential leadership principles. They are taken from my book “The Leadership Gospels” (2008) that uses as the key source, the gospels; the gospels being the reporting by four people (Matthew, Mark, Luke and John) of the words and actions of the founder and leader of Christianity, Jesus Christ. Jesus was the foundation of a world changing movement that grew during its founder’s short life and went on to multiply after his death into one of the world’s largest group of followers. Indeed one definition of a leader is that you can tell them by their followers as a leader cannot exist or be a leader without followers. Two thousand years later, the Christian movement continues. So my premise is that its leader must have said something enduring and therefore by examining his reported words, then there must be many leadership principles that all leaders can learn from and benefit from. My approach was therefore to go through the Gospels, principally Matthew, and select those words of Jesus that have some relevance to leadership and management principles. Next, the leadership principles were extracted. These are identified below.

Leadership Keys:

  • Leadership and change are directly connected
  • Leaders bring in a new order and shift the paradigm
  • Leaders need a “servant heart” that gives, rather than takes
  • Leaders must be clear on whom/what they are and stand for, as it is this inner side will drive what they say and do
  • Leaders have to attract followers
  • Leaders will not always find a “fit” with every person and will be often criticised
  • Leaders use a vision/mission statement; (money as the main principle is a wrong one)

Leadership Style:

  • Leaders show by example: “come with me and I will teach you” and in effect, they will also recruit their own replacement.
  • Leaders have a bold and decisive presence: they practice “walking in front” and literally will pull and lead people. They will not be a bully that forces people, or, be one who pushes and “kicks from behind.”
  • Leaders correct mistakes with people one on one; if the mistakes cannot be rectified then they need to “go public.” If it still cannot be rectified, then they will need to treat the person as not being a part of the “team.”
  • Leaders use strong and direct communication and say it like they see it. This means accepting that inevitably, some will think they are being rude. To communicate the most effectively, face to face contact is needed as it is body language that really communicates; (eye contact is the most revealing part of body language).
  • Leaders trust: This means an acceptance that the lack of trust will usually destroy any relationship between people; no trust, then, no relationship.

Leadership Roles:

  • Planning is needed to give the desired results; inputs give outputs, they are connected directly. Leaders know their people and recognise that people will use different methods and therefore, some methods in certain circumstances, may be more appropriate than others.
  • Leaders select the appropriate number of people for the team
  • Leaders give clear directions to the team
  • Leaders need to give power and authority to the leadership team
  • Followers need motivating to do things and when people are motivated with a compulsive internal drive, they can be unstoppable, as the only motivation that will ever last, is one that satisfies a core internally held value/belief.

For reasons explained in the book, I also felt that the following were important Leadership Essentials

  • People make the financial differences in any organisation, therefore people must be as the main driver (and not money) of any organisation
  • Culture counts as “the way we do things round here” must be consciously considered and the right choices made.
  • Managers can display characteristics of leaders; leaders are not just the “top team”. Leaders need followers who may be managers, but then these managers will need to lead their own people (and will be seen by their people as a leader); and so it is passed on.

In the book I have added my own words to amplify these principles. This amplification examines what needs to be done and how it can be done. It shows how to roll down the principles into current management applications so that these principles can then be readily applied in business and organisational practices. Some of the above principles are straight forward and are common sense. However whilst they are sense, they are often not too common. Additionally many of them are quite challenging. The servant heart one was interesting and I speculate that there are many people who whilst having a leader job title, will not actually see their role in this way. This may be due to the current role confusion between leaders and managers, for example the job title Team Leader is commonly used yet; we rarely find titles of Team Managers or Team Supervisors. Additionally, we can find that some former supervisor titles have been changed to become Team Leaders as this is more “sexy” and sound better. The current outworking when using either a leader or a manager title is more towards making the leader as being the best one, the superior one and the one that has the higher status. Maybe however a servant heart, is perhaps not one that is seen as “sexy” or deserving status in many organisations?

All written by Stuart Emmett,

after spending over 30 years in commercial private sector service industries, working in the UK and in Nigeria, I then moved into Training. This was associated with the, then, Institute of Logistics and Distribution Management (now the Chartered Institute of Logistics and Transport). After being a Director of Training for nine years, I then chose to become a freelance independant mentor/coach, trainer, and consultant. This built on my past operational and strategic experience and my particular interest in the “people issues” of management processes.

Link for the blog: http://www.learnandchange.com/freestuff_23.html  

Note:  Stuart Emmett co-operated with our very own Vivek Sood to co-write the book GREEN SUPPLY CHAINS – AN ACTION MANIFESTO. This book was one of the first books in the world on the topic of Green Supply Chains, and as such is used in Universities around the world for executive training and research purposes.

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