Monday, February 23, 2009

Managing Supply Chain in a Tough Economy

I came across last week this 4-part (35 min total length) video presentation on youtube of Dr. Robert Handfield, Bank of America University Distinguished Professor of Supply Chain Management, Editor Emeritus, Journal of Operations Management, which took place December 2008 at the McKimmon Center on NC State's campus during a Supply Chain Resource Cooperative event. In this presentation he shares and presents preliminary survey results of supply chain managers and the actions they are taking and not taking during this economic downturn.

Most of things he discusses aligns with what I emphasized in my last post "5 Ways to mitigate Supply Chain Risk in this Economy" and also provides additional depth and breadth. His presentation is research based and the solution he prescribes revolves around a) getting past the finger pointing and taking a step back and looking at the whole chain to come up with creative ways to address risks and opportunities, b) collecting intelligence on the financial health of the suppliers & customers, c) continuing to challenge the data available and its relevance, d) working collaboratively with cross-functional teams to come up with change in business terms and conditions with critical suppliers and customers who are in trouble, e) and doing all this with sense of urgency and partnership mindset.

I would highly recommend that you set aside 35 minutes of your precious time to see these 4 videos.

Part 1

Part 2

Part 3

Part 4



Monday, February 9, 2009

5 Ways to mitigate Supply Chain Risk in this Economy

Nortel Networks Corp, once a telecommunications equipment giant, after years of being under tremendous pressures and trying numerous reorganization and cost-cutting actions to improve its competitive position, filed for bankruptcy protection from creditors on Jan 14th 2009. The Wall Street Journal reported that the company was expected to pay creditors $107 million in bond interest that week and owed bondholders more than $3.8 billion.

Now why is this an important incident? The implosion of huge telecom companies like Nortel has widespread negative repercussions not only for their customers, partners and suppliers but also for competitors to an extent. For example, most of the telecommunications equipment manufacturers have outsourced their manufacturing to their contract manufacturing partners like Flextronics, Sanmina-SCI Corp., Jabil Circuits to name few. Although these contract manufacturers are huge players by themselves, an accounts receivable situation and inventory exposure in millions of dollars due to bankruptcy of a major customer could break their back. This will lead to disruption of supply chain for their other customers as well.

But most Tier 1 contract manufacturers have their customer portfolio well diversified so they could probably survive one or two implosions. That is not the case with smaller component suppliers, especially start ups. Start ups generally have one or two customers who drive majority of their revenue. And losing 50-80% of their revenue stream may take them down, and if you happened to be using them in upcoming or released products then it is a huge supply risk and time-to-market risk for your company.

Here are 5 ways to mitigate the supply chain risk in this economy:

1) Validate and monitor the financial & operational health of your key suppliers: In this economy we can expect more businesses to go under so supply chain managers and strategic sourcing managers need to place emphasis on reviewing operations data, financial statements and running "credit checks" on their strategic suppliers. If the companies are based out of countries like Mexico, Malaysia, India, Taiwan or China and their records are not public, then use 3rd party information gathering services. Depending upon what you find out start developing secondary sources if they are a sole-sourced supplier. Require your suppliers to do the same thing with their suppliers as well. This is not easy by the way and it can cost small amount of money but the due diligence is worth it.

2) Conduct Bill-of-Materials (BOM) risk analysis: When a new product is moving from prototype to pilot phase there should be thorough analysis conducted on the components and suppliers being used on the BOM. Most of the sometimes, it is during the new product introduction phase when start-ups with new and advanced technology get used as suppliers. Verification of the financial condition of such start-ups if they are sole-sourced suppliers should be integral part of the risk analysis.

3) Monitor quality more aggressively: When times get tough, suppliers may look for ways to cut corners to maintain their margins so it is important to increase the frequency of the quality audits. Physical site visits during quality audits can also be used as a time to get the feel on their overall business condition.

4) Partnership mindset: In this tough economic climate “partnership mindset” that was preached about during good times becomes even more important. “Let’s just get the lowest price we can” attitude is self-defeating because you’re not building a relationship in which your strategic supplier or partner is looking out for your best interests as well as their own. Remember that this is an ecosystem and losing some of the critical players could shift the equilibrium to your disadvantage. Partnership mindset will open up opportunities for new ways to reduce costs, improve efficiency and quality.

5) Make an investment: If you have a start-up supplier whose products are being used in your future releases and they are in financial doldrums due to tough economy, then invest in them after conducting a business analysis. If you think their technology will be in great demand in future and key to your future products as well, then buying a stake in them will not only secure your supply chain but also open up a future revenue stream.

Those are 5 ways to mitigate supply chain risk in this economy. I would be interested in knowing what other strategies are being employed to reduce supply chain risk related to suppliers. Please feel free to comment to this discussion.


Friday, January 30, 2009

Supply Chain Humor

Lately, I have been posting stuff about all serious business. So I decided to mix it up this time with couple of humorous videos.

These days one of the frequently talked about topics in supply chain is about supply chain risk. It revolves around product quality, supply assurance and lead times associated with delivering a product when the customer wants it at a reasonable price. Examples of supply chain risk are recent incidents like recall of peanut products due to salmonella outbreak that sickened more than 500 people and malicious software in Samsung 8-inch digital photos frame sold by, one of the most popular gift items last holiday season. Supply chain risk comes in all shapes and sizes, as demonstrated in this funny clip by Jim Carrey in Ace Ventura - Pet Detective.

Next, ever go into a store and watch sales people disappear into the stock room and never come back? Here is funny parody by Red Prairie about it. Although it is sales pitch on the value that they bring to their clients, it is definitely funny.




Tuesday, January 27, 2009

With great power comes great responsibility

“From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked” - Luke 12:48

I am sure lot of you have been disgusted by the recent news of John Thain, Ex-CEO of Merrill Lynch, spending $1.2 million in corporate funds to decorate his office, which included an $87,000 Persian area rug and a $35,000 personal toilet cistern custom made for him! The timing of it all makes me furious! At one end, Thain was preaching the virtues of cost control, telling employees to reduce expenses including car services, entertainment and travel, and at the other, he was spending a ridiculous amount of money on his office. All this in the midst of asking the government for a bailout of his troubled company!

There are a few lessons to be learnt here. First, those who aspire to be leaders need to develop an attitude of accountability and responsibility. People entrust leaders to discharge their duties in a competent manner and not abuse authority granted to them. So higher up you go in the organization, higher the expectation on standard of conduct and greater the scrutiny. An abuse of this power is a betrayal of the public trust. You might get away once or twice abusing it but it will come back to get you one day.

Second, people are just people. The subject of leadership has captivated American business audience more than anything. There are also many charismatic leaders out there whose heroic characteristics seem to produce this sense of awe in the minds of followers. What you are getting attracted to is just one of the facets of that individual. Learn from what they do, but don’t put them on a pedestal. They are no divine beings and have the same physiological needs of food, water, breathing, excretion, sleep, sex, etc, like you and me. So don't let just one facet of theirs which you find attractive mesmerize you. Snap out of it!

There you have it. Now, I will get off my soap box!



Monday, January 19, 2009

This is Our Moment

I would like to dedicate this piece to the symbolic importance of tomorrow (Jan 20th, 2009), when Barack Obama takes over as the President of United States of America at a critical juncture in time for the World.

I want to start by sharing a personal story of mine. I believe that I have strong work ethics which I imbibed by watching my father work very hard to become an entrepreneur. I've given my best wherever I have worked. But there was time in my career as a result of a misunderstanding or let’s call it a bad reading of a senior management person, I was put on a PIP (performance improvement plan). Lots of people told me that this is a clear sign that I will be shown the door soon.

For the first few weeks, I struggled to understand why this would happen to me. I then decided to take it up as a challenge and prove them wrong by working even harder. During those tough months of probation, I also spent a lot of time learning about effective leadership, why good employees leave and how to retain them. And I came out a winner from that experience.

Similarly, when you look back in history, we human beings have made great progress during times of adversity. We are going through such a period right now. There is imminent climate crisis, economic woes, inadequate educational system, disproportionate health care cost disadvantage, national debt which is out of control and energy crisis. There are other issues like poverty, terrorism, war and human right violations.

In the face of the disastrous past, for the US my hopes are on Obama, who has created a groundswell of being a proponent of "Change". I am hopeful that he will inspire and steer this nation out of the economic woes, create pathways of change in the health care and educational system, and take a leadership role in fighting the climate crisis. But he cannot do it alone. The prosperity in the past few decades has made the people in this nation reckless about consumption and disconnected with government policies. It is time now to shift our focus from the American Idol, the Brangelinas, and the quick-fix diets and be engaged, vigilant citizens.

Let’s stop the mindless consumerism and embrace the philosophy of “Reduce, Reuse, and Recycle”. Teach our kids that there are only finite resources on this earth and we cannot keep sucking the living daylights out of it. It is time to set aside the individualistic culture and come together to make common good the focus of politics and work on solutions to the monumental problems at hand. 20 years from now, in retrospect let these years not be marked for recession, Madoff scandal, record high unemployment etc, but for an era when human beings came together to change the course of history.

Borrowing words from Obama's victory speech in November:"…let us ask ourselves - if our children should live to see the next century; if my daughters should be so lucky to live as long as Ann Nixon Cooper, what change will they see? What progress will we have made?

This is our chance to answer that call. This is our moment…"


Thursday, January 8, 2009

A Case for Inspirational Leadership

There are hardly any leadership or management books out there that do not talk about inspirational leadership. So why another post on the topic of inspiration? Around 2.6 million jobs were eliminated in 2008. In October, a CNN poll found that 59 percent of Americans believe another 1930s-style depression is very or somewhat likely. A separate poll for Condé Nast Portfolio shows that people working in the finance business are even gloomier: 77 percent of them say their industry is in a state of crisis, and 50 percent say the economy is the worst it has been in their careers.

Thus given the circumstances it is even more important that leaders at every level keep their teams inspired, motivated and focused. There is evidence to support the idea that companies with inspiring leaders perform better. According to DTI, in a survey of more than 1500 managers, people were asked what they would most like to see in their leaders. A whopping 55% stated ‘inspiration’. When asked if they would describe their current leader as ‘inspiring’, only 11% said yes. We have an inspiration gap here!

Here are some of the things that you could do to inspire your team:

Create sense of pride:
Employees don’t get up in the morning and say that today I am going to increase shareholder value by 15%! Instead what would drive them is to know how what they do at work is affecting the big picture. So leaders need to reach out and connect to their emotions, create sense a pride and invoke a passion in them. The story below demonstrates the point:

One of the quarry workers was asked "What are you doing?"
"Can't you see," the man replied. "I'm chiseling stone."
Another stonecutter, when asked the same question, said, "I am just trying to make a living."
A third man was asked, "What are you doing?" His answer was, "I'm building a great cathedral!"

Jim Collins and Jerry Porras have summarized in their book 'Built to Last': “Contrary to business school doctrine, we did not find ‘maximizing shareholder wealth’ or ‘profit maximization’ as the dominant driving force or primary objective through the history of most of the visionary companies. They have tended to pursue a cluster of objectives, of which making money is only one — and not necessarily the primary one.”

Spread positivity and enthusiasm:
There is enough doom and gloom in media and negativity at workplace conversations which is robbing your team off its productivity. Enthusiasm and positive attitudes spread just as quickly and can affect performance just as much—in the right direction.

Show respect:
Equality is at the heart of respect — the treatment of each individual as important and unique without regard to characteristics, such as gender, race, income, title or even perceived performance or contribution to the organization. This should start at the top, only then it will be emulated across the organization.

Provide for two-way communication:
Leaders should encourage two way communications between management and employees. Most of the time major announcements are made and no feedback is collected. There needs to be an avenue where employees can provide feedback and express their concerns about a new development or to even submit general feedback. It is necessary to provide counter-feedback to the concerns raised so that they know that their opinions are being heard.

Show that you care and say thanks genuinely:
John Maxwell said “People do not care how much you know until they know how much you care.” Visit employees unannounced; make time to meet them one on one to understand what they need to be successful at work. Discuss with them their professional goals and career path. Show commitment to helping people develop and grow. When time permits, during a difficult situation be in the trenches with them. Maintain dignity and show compassion at times when you will have to make tough decisions to lay off employees. Because the employees left behind after the lay off can see how their fellow employees were treated during the process.

Create a culture of informal recognition founded on sincere appreciation. Say “thanks” to your people for their efforts and find different ways to recognize them. Make new hires feel welcome and important. Employees will go the extra mile for you when they see that you genuinely care and that their hard work is being recognized.

Empower and equip to achieve your vision:
A Chinese proverb goes “Tell me and I'll forget; show me and I may remember; involve me and I'll understand.” Research shows that participative management is the best way to go. Participative leadership is an active style that stimulates involvement. This spreads a sense of ownership on the decisions being made in the company instead of a feeling of being the bearer of the news of a decision made at the top.

Empower your employees by giving them responsibilities and support your staff in their decisions. It can bring about amazing improvements in quality and productivity while simultaneously improving morale. As much as it is important to have a vision that is bold and ambitious, it is also important to articulate on how you plan to achieve it. Spend time understanding what your employees need to help attain your vision and equip them with the tools.

Walk the talk:
No amount of PowerPoint presentations or posters will affect the hearts and minds of the employees until they see the top management walk the talk. If you genuinely want to see change, then copy-pasting the CEO’s message and re-publishing it to your teams is not going to cut it. The culture that you preach will soon lose its currency when your employees see you act differently from what you preach.

Now what if you work for a management which doesn't value good leadership? You have little control over folks higher up in the food chain. However I would argue that you do have control over how you want to lead your team. Remember, you don't need anyone's permission to inspire someone in your team, be it recognizing their good performance (at minimum verbally) or displaying courage by telling the truth or showing that you genuinely care.


Update 1/09/09: Guy Kawasaki tweeted this blog post!!!