May 2, 2012 | Category, Demand chains, Operations, retail
The word sustainable holds connotations of farming practices, and environmental sensitivity, all true, but only half the story.
A sustainable chain must also be commercially sustainable, and one without the other is by definition, unsustainable.
The characteristic that drive both are similar, transparency, and connections through the chain, both facilitated by the collaboration tools of the web. The outcome is increased productivity of the whole value chain.
The price deflation being experienced in the value chains supplying Australian retailers are testing the limits of Australian suppliers, and those that are surviving are dedicated to the implementation of chains that are commercially sustainable, and increasingly environmentally sustainable as consumers interest in product provenance increases.
Quietly, out of a home office, GFAP, a small chain consultancy that supplies a customised web based tool that manages value chains, to this point largely around horticulture, is flourishing. Very few pieces of produce arrive at Woolworths or Coles without being touched in some way by this system, but few have ever heard of it.
Mar 19, 2012 | Management, Operations
It takes discipline to concentrate on the process, and to let the outcome take care of itself, recognising that there will be stumbles along the way, but in the long run, the results will come when the process is optimised.
Business is filled with sporting analogies, very useful in making a simple point, so here are two more that make my point.
- Manly rugby league is seemingly currently having a tough time. Defending premiers, their coach left for the enemy under unsettling circumstances, and now their stars are being wooed to go elsewhere, after premierships in 2011, and 2008, and being runners up in 2007. A winning team is slowly being broken up. If you recall, several of their stars left after the 2008 premiership, and again in 2009 when they failed to do much, “what are they going to do for a half-back” the pundits cried 2 years ago. Well up stepped a young bloke to whom they paid relative peanuts, and turned it all around, and now wants to be paid his worth. Their team is packed full of rep players, many of whom have come through the ranks, if not from Manly, then elsewhere, and had their potential realised by the processes at Manly. This does not happen by accident, it is the result of the combined brainpower of the management and coaching staff. They have in place a set of processes, talent selection and management, injury management, players skills, team cohesion on the field and management of the players as individuals. All this comes together on the field, and is extremely hard to replicate in total, it is the bundle of processes that drives the results over time. It remains to be seen if Manly can continue when several of the key brains in building and improving these processes have left, but the playing roster is, for the moment, unchanged.
- Some years ago I watched the British Open on TV with my sage old Dad, (2005 I think) the one Tiger Woods blitzed by 5 shots, and seemed unstoppable. It was noticeable that he often hit off the tee with an iron when the others in his group all used woods, even on some of the long holes. This seemed incongruous to me, but obviously worked. Dad explained it by asking the objective of golf:
“Obviously, to get a low score I responded”
“How do you do that”?
“Get as close to the hole as possible, then sink it” I said, (or something like that)
“Is a long first shot always necessary”?
By then the penny was slowly dropping. Clearly not, the best shot is the one that makes the next one easier, and contributes the most to the outcome, a low score on the hole.
Dad reckoned Woods mentally put himself standing at the flag, and worked out his shots backwards, deciding where each shot should end up to make the next one easier, and more certain, and then selecting the appropriate club. By concentrating on improving the golfing equivalent of the interdependent processes required to get a low score, the low scores did come, more often than his opposition.
Pity he did not apply the same discipline to his life off the course, and I resist the temptation to pun on “score”.
Mar 14, 2012 | Management, Operations
Retailing is under pressure, all the established retailers are suffering declines in profitability, and the media is full of retail CEO’s bemoaning the eroding margins.
Australians appetite for flat screen TV’s over the last couple of years were is amazing, we now have TV’s in almost every room in the house, and prices have dropped precipitously as volumes have increased, and we are unwilling to pay for fat retail margins.
Surprise, surprise.
The reduction of the 40% margins for retailers, delivering from $530-600 for a unit 2 years ago, to single digit margins and $40 through the till today has all the retail CEO’s crying poor.
The change in the retail competitive environment has not been matched by the performance measures bricks and mortar retailers employ, and their business model is becoming redundant.
Retailers focus on dollars through the till, product and category margins, and returns for floor space. Generally they forget that business is about making a return on investment until the AGM, not counting margins that get chewed up by working capital requirements down the supply chain.
E-retail is driving a stake through the heart of bricks and mortar retailing of electronics, and it will come in white-goods very soon. E-Tail retailers focus on the return on funds employed, not margins. When you take the customers order and 10% deposit before you pay for the stock, and get the balance COD, it matters little if the margin is $40 when the volumes are skyrocketing, because the funds employed are very low.
Feb 8, 2012 | Change, Management, Operations
It seems paradoxical to me that the most successful company on the face of the earth over the last decade, one that has been successful because of their astonishingly good product design, have not leveraged that innovative capacity into their operational design.
I refer of course to Apple, whose profit in the December 2011 quarter was $13.3 Billion, and they became, again, the most valuable company in the world.
The woes of Apple’s supply chain, particularly Foxconn have been extensively covered, and most, if not all of Apples customers would be familiar with at least a small part of the story.
Around the developed world, and increasingly elsewhere, it seems consumers are developing a conscience, they care about more than just product performance, and are evolving to make purchase decisions that includes some consideration of the “integrity” of the product concerned, from organic food, to sports shoes, to coffee, and now to electronics and gadgets.
Innovation is way more than just making the products better, it is also about making the supporting structures better, improving the whole operational chain, not just the consumer facing end.
Imagine the innovation Apple could bring to the manufacturing supply chains they employ if they took a small piece of their enormous and well deserved profits from their product design, and focused on operational design. Instead of observers using Toyota Production System as the benchmark, in 10 years it would be the APS, Apple Production System, and their profits would have soared again.
Oh, by the way, if Apple managed to create an APS, their improved profits would come not just from their superior design of the whole value chain, their APS, but because consumers do truly care about the integrity of what they buy. In that event, a few of the building blocks for a re-emergence of manufacturing as a economic driver in the US and Europe would be put into place.
Jan 24, 2012 | Management, Operations
Budgeting and storytelling are synonyms in many companies I have seen. The budgeting process usually is a source of much angst, optimism, gaming, heavy workload, and often intimidation.
We all bitch about the inflexibility and unreality of the budget setting process, as well as the disruption to operations when they are being negotiated, and for what? Usually a set of numbers based on how well individuals and functions believe they can game the system.
It seems sensible to find a way to make the performance management processes much more responsive to the environment, changing circumstances, competitive initiatives, and innovation opportunities that emerge.
Given budgets are about costs, the costs of doing business, of investing, of risk taking, of offensive Vs defensive action, and resource allocation, it seems a simple set of questions before a cost is incurred would be useful.
Instead of just asking “do we have the budget”?
Ask:
- Why is this action necessary”?
- Will the action achieve the necessary result?
- How is the expenditure adding value?
- Can we effectively execute on time?
Questions like these can drive a continuous priority review process, always a good thing.
Jan 23, 2012 | Change, Management, Operations
Most of us know that if we set out to lose weight, a crash diet usually just works in the short term, what we really need is a change in lifestyle, or at least, some aspects of our lifestyle.
Obvious.
Why then is it that in corporate life we usually take the crash diet course?
There have been lots of headlines over the last few weeks about the probability of job losses in the banking sector, a response to the looming financial difficulties. The financial services sector has been doing very well, record profits despite the problems of a couple of years ago, and have been adding jobs, close to 40,000 over the last decade, and now they need to diet, so “crash” find 10,000 to cut.
Surely the problem is one of an ageing business model, in personal terms, too much junk food, not enough veggies and exercise, so now the management reaction is a commercial crash diet. History suggests there will be a lot of pain, and long term, little or no gain.
Those customers whose business is down the shallow end of the banks customer Pareto, the SME’s who are really the engine of sustainable growth in the economy will now find it harder to borrow. The banks are tightening the screws because of their crash diet, so there will be no-one to understand their SME customers business and consider their funding needs, and requests will be reduced to decision by an algorithm. Both the banks and the SME borrowers will lose under these conditions.
Pretty soon, hopefully, someone will realise the problem cannot be solved with a crash diet, it needs a lifestyle change, and only when that happens will sustainable recovery of commercial fitness be possible.
