Why do we turn to nonprofits, NGOs and governments to solve society’s biggest problems? Michael Porter admits he’s biased, as a business school professor, but he wants you to hear his case for letting business try to solve massive problems like climate change and access to water. Why? Because when business solves a problem, it makes a profit — which lets that solution grow.
Abe Lincoln once told a story about a frontiersman who had lost his way in an uninhabited region on a dark and stormy night. The rain was torrential and was accompanied by terrible thunder and lightning that encased the evening sky like an electric spider web. To increase his trouble his horse halted, being exhausted with fatigue and fright. Just then a bolt of lightning struck a neighboring tree, and the ensuing crash finally brought the man to his knees. He was not an expert in prayer, but his appeal was short and to the point: “Oh, good Lord, if it is all the same to you… give us a little more light, and a little less noise.”
Small to mid-size manufacturing companies sense they are in trouble. Customers want more—more variety, more convenience, more flexibility and more service. Yet satisfying them adds even more cost and complexity at a time when pressures are felt from tight labor and increasing raw material prices. Big players have steadily acquired new skills needed to identify and capture the difficult improvements. But with fewer resources, smaller companies aren’t always able to run the business and keep up with the competition at the same time.
To make matters worse, the manufacturing industry is awash with wonky jargon that serves to complicate and intimidate as much as it does educate. Businesses without legions of in-house resources must worry about how to adopt “circular economy” business models, migrate to “smart” manufacturing, leverage Industry 4.0 technologies, and harness the Internet of Things. Whitepapers by consulting firms swirl about in a never-ending vortex looking for a desk to land on.
In short, there is a lot of noise out there, but not so much light.
The companies that continue to achieve competitive distance do so because they drive only those supply chain improvements that truly matter to the customer and the bottom line. Those that are falling behind don’t necessarily need to “digitize” their supply chains as much as they need to stop making tradeoffs between functional competencies. For example, heads of manufacturing try to rationalize overcapacity issues in their plants, procurement officers consolidate their purchasing to leverage scale, and logistics managers seek to cut costs and improve delivery rates at their scattered warehouses. Such piecemeal efforts, however, won’t make much difference unless they’re part of a broader operational-improvement effort.
Too often, improvement in one area translates into chaos in another.
The answers for small operators who don’t have the resources to keep up with the Joneses lie not in adopting management fads but in shoring up common areas of opportunity that are ripe in value. Businesses that can execute these supply chain strategies have an opportunity to become the overall market leaders.
Minimize Self-imposed Volatility
If there is one common headache shared across all businesses, it is missed forecasts. There are, as the old joke goes, two methods to get an accurate forecast, but neither one works. A big reason for this is that forecasts are typically cannonballed by two forces of volatility: one that is market-driven and the other that is self-induced. Companies that have straightened out their forecasting woes have rooted out their own volatility drivers.
One real example: Company A discovered that 30% of its forecasting problems stemmed from stockouts. Upon further review, the underlying reason for the outages was the plants had no knowledge of sales promotions and thus had little reason to create inventory. The takeaway was to minimize the self-inflicted chaos and then invest in reactive measures like production flexibility to handle the rest.
Prioritize Key Customer/Product Combinations
Collaborations between customer and manufacturer have proliferated in recent years as supply chain improvements have become exponentially harder to come by. Companies without a sales and operations planning group can barely find the time to find the right mix of products and services to protect their customer bases.
However, in a short amount of time (at little to no investment), an operator of any size can implement a “consumer value” approach, which means that customers are prioritized based on profitability and strategic importance while also sorting products on volume demand variability. The “sweet spot” focus for the business is found at the intersection of these products and customers, which should then be serviced at the highest priority.
Periodically Redesign Your Logistics Network
Conventional wisdom states that concentrating inventory in fewer distribution centers leads to inventory savings. However, centralization usually increases logistics costs from underutilized capacity and longer distances. Given the significant position of transport costs on most P&Ls, suppliers can’t afford to ignore inefficiencies in their logistics operations. A company should periodically design its network (every few years) based on precise knowledge of what customer types need and which activities add value.
To maximize on the optimum profitability, businesses intending to compete must lean on a robust model that incorporates all relevant variables and constraints. Supply chains can typically reduce logistics costs by up to 7% while maintaining or even raising service levels with an in-house linear program model.
The pace at which supply chains have been incorporating new business models has greatly accelerated over the past 10 years as gains in technology have boomed. Now more than ever, supply chain management is evolving into a cross-functional activity. Teams will have to interact more closely with other functional areas to identify the factors that influence self-induced volatility, customer profitability and network hemorrhaging, and agree on actions to manage them better.
The answer in this era is not subscribing to complicated precepts but being able to translate information into action and using language that is easy to understand.
Take it from Honest Abe.
…Back to present day and the supply chain. Two powerful levers a company can use to optimize inventory are “Working Capital” and “Customer Service Levels.” Through the effective use of these levers, you can free trapped working capital while improving service levels.
Your company’s inventory efficient frontier is a tradeoff curve between working capital and service level and represents the currently achievable service level at any corresponding inventory investment. At its most basic, start with a piece of graph paper and plot your current service level on the x-axis and current inventory level on the y-axis. Chances are you are not on the inventory efficiency curve that is theoretically possible given your current operating capabilities. When you remove inefficiencies, failures, etc. and estimate how much your service level will go up and down with changes in inventory investment you end up with a curve – your current inventory efficient frontier curve. Organizations can slide up and down along this curve by manipulating the service and inventory levers (see Figure 1).
However to create real value you have to be able to shift the inventory efficient frontier so that higher service levels can be achieved without increasing inventory or the same service levels can be achieved with less inventory. Multi-echelon Inventory Optimization (MEIO) allows you to truly optimize your inventory across the entire supply chain and enables you to shift to a new efficient frontier for your entire supply chain.
By modeling the end-to-end supply chain, MEIO determines not only the optimal inventory to carry at each location but also at which locations each item should be carried. MEIO looks across sales channels, distribution tiers, and even types of inventory (raw, WIP, FG) to understand how best to minimize total inventory while still providing the desired customer service levels. MEIO can take you into unexplored territory providing reductions in working capital of up to 30 percent or more. For most companies that amounts to millions of dollars in savings annually. That is an impressive use of levers.
What is important to understand is that the supply chain is a living, breathing and constantly changing organism. Your optimal inventory strategy for this month might be suboptimal next month due to changes in demand or supply, changes in competition or market health, or a variety of other factors. Modeling your end-to-end supply chain inventory is not a “one and done” activity and therefore there is always opportunity to shift that efficient frontier into new and undiscovered territory.
Do you understand your company’s service level – working capital tradeoff? Can you model your end-to-end supply chain to determine your optimal inventory locations and levels?
About the Author
Henry Canitz is The Product Marketing & Business Development Director at Logility.
A successful day begins with a purposeful morning. A lot has been written about the power of your morning routine to set your day on a positive course, and science backs those assertions. A common thread among many books and articles on this topic is the importance of a solid morning routine.
Success in the morning begins with the plan you made the night before.
Whether you’re a morning person or a night owl, we all start our day at some point. Your success today depends on how you begin and end your day. Tapping into the power of mornings, a time of day when you are most active, might be the key to your long-term success. While most of us are still wrestling with our snooze buttons, many of the world’s highest achievers are getting a head-start with their work. A morning routine sets you up for the whole day, and if it is done right, everything else in your life will follow.
“Morning and evening routines prime you for success. They help you achieve more, think clearly, and do work that actually matters. They keep you from thoughtlessly stumbling through your day and make sure you get the most important things done,” says Stephen Altrogge of Zapier.
Many successful people spend the first hours of each day alone, to reflect, think, meditate, create or read. Find something that motivates you and look forward to it every morning.
In a commencement address Steve Jobs gave at Stanford back in 2005, he revealed the motivational tactic that he used to start each and every day.
For the past 33 years, I have looked in the mirror every morning and asked myself: “If today were the last day of my life, would I want to do what I am about to do today?”And whenever the answer has been no for too many days in a row, I know I need to change something.
Pretty powerful stuff. Would asking that question help keep your morning to-dos in perspective? Time management starts right from the minute you wake up from bed. You are most active and productive in the morning, hence the need to do everything in your power to make the first few hours count.
For 15 years, Starbucks President Michelle Gaas has set her alarm for 4:30 a.m. to go running. Gretchen Ruben, popular author of The Happiness Project wakes up at 6 a.m. and works for an hour before her family rises.
The AOL CEO once told The Guardian that he gets out of bed immediately when he wakes up at 5 or 5:15 in the morning, either to answer emails or sneak in a workout. “Historically, I would start sending emails when I got up. But not everyone is on my time schedule, so I have tried to wait until 7 a.m. Before I email, I work out, read and use our products.”
Dan Ariely, behavioral economist at Duke University, once said, “It turns out that most people are productive in the first two hours of the morning. Not immediately after waking, but if you get up at 7 you’ll be most productive from around from 8–10:30.”
“One of the saddest mistakes in time management is the propensity of people to spend the two most productive hours of their day on things that don’t require high cognitive capacity (like social media),” says Ariely.
Start your morning on purpose
If your mornings are rushed, the simple solution is to get up a bit earlier. This means going to bed a bit earlier too. It pays to commit to a few value activities every morning and over time you will create your own optimal morning ritual. Don’t try to fit too much into the mornings though. You don’t want to procrastinate. Commit to one or two if that will work best for you. For me, it’s exercising, reading (posts saved to Pocket) and writing. Don’t just have things you think you should do but don’t really want to do. You should have a sequence that starts your morning ritual. But the drawback to having a routine is that it can get boring. Occasionally you need to mix it up when things get stagnant. Take a chance on something new if you have to. Do something that’s out of your comfort zone. Surprise yourself.
Ian Fleming, who is best known for his James Bond series of spy novels maintained a rigorous morning routine to stay prolific. He once said: “Writing about 2,000 words in three hours every morning, ‘Casino Royale’ dutifully produced itself. I wrote nothing and made no corrections until the book was finished. If I had looked back at what I had written the day before I might have despaired.”
There are thousands of reasons to get up each morning and start your day right. You’ve got to find your reason. Once you find it, do everything in your power to make it happen.
Knock out your most difficult work first thing in the morning.
A purposeful morning isn’t something that just falls into your lap — it’s created consciously. You don’t have to implement all these ideas at once, but try one or two out and see if your mornings improve. I think you’ll enjoy them as much as I do. Time-management expert Laura Vanderkam highlights what makes mornings special and how we can use them more efficiently in her book What The Most Successful People Do Before Breakfast.
“There are going to be reasons why you can’t tackle a personal priority at 4 p.m. — things have a lot less likelihood of coming up at 6 a.m.,” says Vanderkam.
Having a regular daily early-morning ritual leaves you feeling abundant, refreshed, and energized from early in the morning until you wind down at night and end your productive day on purpose. High achievers tend to find routines that work for them and stick to them to get their best work done — it’s typically something they credit as a core to their success.
In his book Daily Rituals: How Artists Work, Mason Currey writes about the habits, routines, and rituals of hundreds of artists, including Benjamin Franklin, Charles Darwin, Twyla Tharp, Karl Marx, Pablo Picasso, and Ernest Hemingway. Currey came to this conclusion after studying the great artists: “In the right hands, [a routine] can be a finely calibrated mechanism for taking advantage of a range of limited resources: time (the most limited resource of all) as well as willpower, self-discipline, optimism. A solid routine fosters a well-worn groove for one’s mental energies and helps stave off the tyranny of moods.”
Success in all fields of endeavor is all about creating real intention in the morning and committing to it. Breaking out of old habits is not always easy, but establishing new, positive habits has the potential to be a strong influence in your daily life. Starting your day with a solid morning routine helps make every day an opportunity for success.
I get annoyed by articles that look at big tech companies (the usual suspects being Amazon, Apple, Google) that do certain things, and how you should too.
I’m sure you’ve seen the articles like the following:
- 5 key takeaways from Amazon’s customer service process that can improve your company
- Eight ways to make your company more like Google
- Five things you can learn from Mark Zuckerberg by how he eats breakfast (#3 will shock you)
My issue with these articles isn’t that they break things down into bite-sized chunks. The problem is when people look at these chunks, pick them up, and try to apply them in their own company, or product without understanding the reasoning behind it.
You can’t just pick jigsaw pieces from another puzzle set and try to shove them into the puzzle you are working on.
Do you understand why other companies do things a certain way? Do you understand why they’ve made their product a certain way? I’m not just talking product features — I’m talking about the things that are intangible, the thing that make that product their own creation.
These intangible factors are hard to describe and write about. Try taking a piece of DNA from another company and splicing into your own, and it’s not going to work out.
That’s foolish: You need to take a step back and take a look at the reasoning behind what others are doing.
- You can give me all the equipment (guitars, effect pedals, amps) that Jimi Hendrix used, give me the exact settings he used, but I wouldn’t be Jimi Hendrix. Give Jimi Hendrix a $70 guitar from a pawn shop and a $50 practice warmup amp and he’d still run circles around you and you would know that it’s him playing.
- Take Tiger Woods in his peak. Give me all his best equipment. Give Tiger equipment from the early 20th century, and he’d still run circles around me in a round of golf.
You could give people the same resources, the same procedures from other companies, make a carbon copy of them, but have nowhere near the same success, because you didn’t understand the why behind why they do things. That’s why you can’t just clone a product by getting it developed offshores for cheap without understanding the intangible factors behind the product. It’s missing the heart and soul.
That intangible factor is priceless and hard to quantify, much to the chagrin of people who think that everything can be quantified.
To be clear, I’m not saying that you should not get influenced by the works and practices of other companies.
You should! Be influenced by the world around you. It’s a great idea to take bits, pieces, and chunks from processes of other companies, examine them, and find ways to mold them that it fits with your product and company. You can look at these chunks and twist them so that you can fit them into your puzzle. You can also make tweaks on your side as well. Companies do this all the time.
One example I want to discuss would be the lean startup, a methodology that many seem to understand, but seem to fall short in its execution.
There are some very good principles behind the lean startup, yet I feel that too many people try to just take it as it is, drop it into their company and their culture, and expect everything to take care of itself. You need to adjust it accordingly to fit in with your culture.
Lean Startup Methodology focuses on building what customers will use, not what you think they will use. It values eliminating waste, maximizing learning, and measuring results. Iterating through the Build-Measure-Learn loop quickly is the goal.
Many folks miss the maximizing learning part of Lean. They build products quickly, release them to customers, and ask them if they like it. As soon as they get a yes or see a bit of traction, they think they are done. They stop talking to customers, and just keep building. Soon customers are out of the feedback loop. If you are focusing more on building your solution than learning from your customers, you are not Lean.
I’ve known companies where people came from other companies and inject some principles and ideas from prior companies with various levels of success.
If they’re forming new processes, getting in at that ground level to create these processes can work. However, depending on how different the cultures are at the company, it may not work out whatsoever, or major changes have to be made. This can result in forced change that upper management wants to see, but those further down can see the writings on the wall. We’ve all heard of plenty of great companies lose their way when other outsiders are added to the team, and try to shove certain things down the throats of others, without realizing the consequences. Just because it worked somewhere else, it doesn’t mean it will work the way you want it to elsewhere.
There is nothing wrong with change, but when you try change for the sake of change without thinking about the long term impacts, that is when things can easily go astray.
You have to be your own company, your own product, and your own Product Manager .
Yes, take influence and ideas from others, find ways that fit with your company culture, and see what happens. However, don’t do something because all the other companies are doing it. Understand why it works for them, and see if it will work for you.
To repeat, you can’t just take a piece of a different companies DNA and splice it into your own without thinking of the consequences.
Originally published at www.pmpaul.com on July 27, 2017.
Demand Management: The function of recognizing all demands for goods and services to support the market place. It involves prioritizing demand when supply is lacking. Proper demand management facilitates the planning and use of resources for profitable business results.
Source: http://www.apics.org/ (10th ed.)
The last few decades have seen an increasing demand for enterprise software applications that can streamline supply chain processes and provide lean manufacturing capabilities. At the other end of the supply chain, companies have been moving towards outsourcing their product distribution in order to keep sales overhead in check without sacrificing revenue.
These recent trends have resulted in a unique dilemma. While companies can produce products more efficiently, they have little knowledge regarding what to produce, for whom and when. They now have better visibility into their supply chains but they lack the same kind of visibility into their often-fragmented demand chain.
The current economic slowdown and huge inventory write-offs resulting from this lack of visibility have highlighted the need for a systematic way to predict and manage demand. New technologies provide the capability to extend supply chain visibility that can support a truly dynamic collaborative internal environment; but companies are looking beyond sources within the enterprise, such as sales and promotions groups, to include customers in the demand management cycle (1).
Accurate forecasting remains central to the success of a demand management initiative, but demand management is much more than just forecasting. Traditionally, forecasting involves looking at past demand data to predict future demand. Demand management goes beyond the static forecasting of yesterday, replacing it with a more fluid, ongoing view of determining demand that involves all demand-chain constituents. Currently there is a thrust towards real-time synchronization of the supply chain to the demand signals. This collaborative method enhances the accuracy of forecasting since all factors affecting that forecast can be viewed by all stakeholders, including customers (2). Companies can begin to bridge the gap between their supply and demand chains by doing the following:
1. Reshaping relationships with channel partners to ensure accurate demand forecasts. Manufacturers should implement a closed-loop process for gathering, analyzing and filtering demand forecasts from channel partners. The demand management system should be tightly integrated with management systems for entitlement and other benefit programs for channel partners. This would help to ensure that just-in-time manufacturing is performed for the right products, in the right quantity, at the right time.
2. Basing inventory allocations on real-time demand forecasts that incorporate information from all channels—both direct and indirect.
This increases revenues by targeting allocations to those channels and locations that are the most effective sellers.
3. Ensuring that your own house is in order.
According to Andy De, director of solutions marketing for i2, demand management solutions are most effective when paired with other supply chain applications. Says De, “Having an accurate picture of demand is irrelevant if you don’t have a supply chain that can meet it.” In addition to cooperation from other supply chain partners, in order to achieve the benefits of a truly dynamic collaborative environment, companies need to get their internal demand management processes in order (3). For example, the promotions group in a company responsible for creating and driving demand is often disconnected from the operational group that produces the product and as a result ends up spending money promoting a product that operations cannot deliver. Ensuring that the different groups that have a stake in the demand process are connected is important.
4. Ensuring the presence of accurate intelligence along with collaboration and automation.
New technological developments have enabled real time flow of information within and across enterprises leading to better forecasts and an enhanced ability to respond rapidly to customer requirements. The downside to these automated processes is that they could be transferring bad information. Despite sophisticated statistical methods, it is impossible to eliminate market uncertainty from the forecasting process. Customers’ purchasing departments have every incentive to inflate estimates. It is important to have people in place who can analyze the forecast to see how it fits in the total market so that the company builds to actual end-unit demand rather than estimates that have been distorted as they travel through intervening layers (4). Providing greater supply chain visibility to downstream supply chain partners will eliminate their need to overstate forecasts.
5. Choosing demand management applications that address the unique challenges faced by the specific business. Many existing applications fail to fulfill the specific demand management needs of companies. Some enterprise applications support fixed pricing strategies but their solutions cannot easily maintain dynamic forms or manage prices across channels. Other applications are limited in terms of other demand management challenges. Certain customer relationship management systems, such as those from Siebel Systems or KANA, assist sales personnel but lack insight into price sensitivity and supply chain capacity and are therefore of little value in terms of deciding which orders to take and which offers to recommend.
In the near future, companies are likely to embrace three continuous demand management strategies that incorporate feedback loops from downstream processes and market conditions: I) linking forecasts based on causal variables, like economic indicators, to current sales activity and field-level orders to create market sensitive demand forecasts that set corresponding capacity and inventory recommendations; II) linking capacity to changes in demand so that companies can optimize service levels, safety stocks, and inventory levels, even in conditions of sudden demand variability; III) adjusting price and contract terms to changing market conditions (5).
Lavey, P. (2001, September). Best practices in enterprise relationship managment. KMWorld.com.
(1) Anderson, A. (2002, June). Togetherness pays. MSI, 20(6), 60-65.
(2) Jones, K. (2002, June). In the driver’s seat with demand management. MSI, 20(6), 62-64.
(3) Anderson, A. (2002, June). Togetherness pays. MSI, 20(6), 60-65.
(4) Parker, K. (2002, February). Events happen but demand is always. MSI, 20(2), 40-43.
(5) Kilgore, S.S. (2002, March). Continuous demand management boosts margins. MSI, 20(3), 44-46.