Category: Collaboration

Automotive – An industry in transition – Big threats, Bigger opportunities

Technology driven transitions have a significant impact on companies, industries, and markets. This paper provides insights on preparing and executing effectively during such transitions. It analyzes the transition that the automotive industry is going through that has major risks and outsized opportunities. Two areas have been emphasized – operationalizing long-range planning and adapting structurally to market demand signals. The author outlines unique capabilities that Zyom specializes in to help companies navigate the complex and risky road ahead.

Technology driven transitions

All transitions, especially new technology-driven transitions, that are global in its reach, result in big risks, even for strong incumbents in the industry impacted by the change. Most of the risks are unknown, before the technology achieves suitable level of maturity for larger scale usage. Some can be existential risks.

However, in most cases, these transitions result in significant opportunities to create and carve out extremely large, market opportunities. A sizeable subset of these transitions have an outsized impact in altering user/consumer behavior in profound ways.

While there is a large body of work about the disruptive impact of new technology on companies and industries impacted by the change, most of it is focused on higher level competitive strategy.

While this is an important line of investigation, it suffers from a major shortcoming.

Far too often companies fall short in the vital area of executing – making their strategy operational. And this problem plagues larger incumbents who get knocked off their perch by these transitions, and strong, mid-size competitors alike.

This paper is a study of one of the most critical transitions that is ongoing in the automotive industry – from polluting ICE cars to lower-carbon alternatives – which is yet in its early innings. It offers new ideas and approaches for operations management to prepare, plan and execute during these transitions effectively and efficiently.

The points surfaced here can be utilized by cross-functional operations leadership (product, operations – sales and supply ops, and operational finance) for any other technology-led, large-scale transitions that are emerging or ongoing in any physical products industry.

Automotive – A massive, bumpy transition, a looming imperative

The automotive industry is in the middle of a massive transition. This has resulted in big risks, and sky-high opportunities.

A massive, seemingly irreversible transition[1] is going on in the Automotive industry, starting with the large, well-capitalized economies– from legacy IC[2] Engines to Battery EV (or EV [3]) and other alternative energy auto options (hybrid, hydrogen, etc.), due to a confluence of many forces:

  • Adverse impact of fossil fuels on humanity’s well-being on a large scale – pollution, air-quality, grave hazards to ecologies and humans caused by oil extraction companies and ICE autos, which is also a key ingredient causing extreme climate uncertainty. In 2020, the transportation sector alone accounted for about 20 percent of global greenhouse-gas emissions (source: McKinsey, McKinsey__Study-on_the-future-of-mobility).
  • Resulting government regulations, along with controls, incentives and creative policies put in place by some of the largest global economy players and GHG[4] emitters – from EU to US to China, Australia, India, among many others.
  • Availability of suitable technologies & materials – Although technologies are still far from optimal – for instance, EV battery materials resulting in more mining, potential future conflict between energy and food supply chain needs[5], greater dependence on energy from utilities, most of which are still dependent on carbon-intensive/dirty carbon sources, the supply-side of these materials have scaled up significantly over the last 5+ years, so has driving range and charging availability[6].
  • Shift with bruising bumps in market demand[7] towards EV (and other low-carbon options), and away from the traditional ICE auto, despite higher prices of EVs/ alternatives versus ICE autos[8], near term demand slowdown notwithstanding.
  • A major transformation underway among legacy ICE auto-makers as they slowly but surely wake up to the serious competitive, potentially existential threats posed by the electric transition, as a means to cut emissions, the technologically smarter pure-play EV companies making it, and the rising public awareness around climate impact of ICE autos.
    Leading, pure-play EV makers, with their smarts in clean-sheet design in hardware, software, its integrated functioning, zero legacy operations baggage and consumer-friendly direct sales model, appear to have a sizeable lead over the legacy makers in engineering and manufacturing of EVs; as Jim Farley, CEO of Ford candidly admitted [9], not too long ago.
  • Lower complexity Bill of Materials (BOM), a transformed product – Despite challenges in manufacturing[10] EVs at scale and attaining suitable margins, from a BOM standpoint, the EV is a simpler, and in key respects, a superior product too – beyond being fossil fuel-free. In addition, with the EV, the auto is going through a radical transformation – from a mechanicals-heavy to an electronics and software heavy product.
  • Very Bumpy Transition guaranteed– As this paper was going to press (early January 2024) the drumbeat of downbeat and dismal news from the EV industry reached a high pitch. Demand for EVs appears to be stalling in the near term, down substantially from the rising trend that was emerging over the last 2-3 years (footnote#1). Legacy ICE automakers who had previously made bold commitments to allocate substantial resources to EV capacity, are reducing their EV commitments, often substantially (GM, Ford, etc.).

A sizeable number of legacy ICE automakers are instead cranking out more hybrids at the expense of EV’s to achieve their reduction goals.

The underlying EV technologies, and other ICE alternatives need to evolve and mature significantly and swiftly. Yet, it is clear to the informed consumer, especially those that can afford it, that they do not need a power station burning polluting fuel under the hood as they go from point A to B – the case with IC engines. For legacy ICE auto companies with significant direct emissions[11], transition to EVs and other low-carbon options, is a looming imperative.

In fact, this can be stated with a high degree of confidence[12] –for all ICE automakers, except very few, who started on their learning curve of EV operations a few years ago, the transition to a cleaner automotive technology, is an existential threat, as the inevitable shakeout takes place.

Planning & Preparing for the transition

So, how should the auto industry prepare itself for this transition – both the traditional ICE automakers and their younger EV rivals? Following are 2 key takeaways based on Zyom’s research and direct industry experiences[13] even if transitions were not of the same magnitude:

  1. Operationalize Long Range (5+ years) Planning – From operational standpoint, most long-range business planning cycles range from 12 to 24-month (hi-tech, electronics intensive industries).

In many industries, the range stretched out much more due to the choking of supply chains during the recent covid-19 pandemic, ongoing significant restructuring & retooling of supply chains, and altered goods flows due to strategic concerns over potential or actual lost capacity and resources

These stemmed primarily from the unpredictable conflicts impacting several regions – namely, Russia’s ongoing attacks on Ukraine (harness makers), China’s aggressive territorial postures towards Taiwan (semiconductor chips, rare earth/ other key EV raw materials), the Israel-Hamas war (OPEC majors’ region).

Our investigations indicate a longer time range planning process is required.

No, long-range planning cannot eliminate uncertainties caused by such unpredictable events. This leaves a big question –
how is this (long-range planning) different from Business Continuity Planning?

The key word here is ‘operationalize.’


Most long-range plans are basically of limited use, if not futile, since many of the key leaders who design and implement it – manufacturing and supply chain, sales, product-line management – realize, that planning for anything beyond 2 to 3 quarters, in rapidly changing, technology change intensive industries – is, at best a guestimate, in the worst case an output of little use – because plans beyond 2+ quarters are perishable, and it’s a fool’s errand to try and bring it back to life, or worse – modify those to utilize it in running operations.

Operationalize implies the ability of tying these long-range plans with plans in the tactical horizon (2-6 quarters out), ensuring these are not only tied with overall strategy, but also considers likely disruptions along various operating links, nodes, peoples, and evolving economics – macro and micro – across business cycles.

This is where a complete commitment to cross-functional knowledge, and capability sharing and collaborative planning is required across supply chain partners (product enterprise – auto OEMs, in this case, and their key suppliers – Tier1, some Tier2, and others upstream), and across functions within the auto OEMs (Product Line Managers, Sales and Manufacturing/ Supply Chain operations, and Cost/Value engineering).

Shrinking Window of opportunity – Legacy automakers, in the US and EU especially, need to make concerted efforts in operational long-range planning, since their “window of opportunity” to stay competitive maybe smaller than they think (case in point – Labor strife at the Big-Three[14] in the US resulting in a 25% labor cost increase[15], EU mandates for 100% EV production effective 2035).

Pure play EV manufacturers in the US, EU and Asia, except a few[16], may also have a rough road ahead, with a smaller and potentially shrinking “window of opportunity” versus legacy, ICE vehicle makers, due to the intrinsic capital-intensive nature of the industry (requires significant capital investment up front in plant and equipment), and extrinsic factors such as – intensifying competition from current EV leaders (Tesla world-wide, BYD of China), structural debt-intensive nature of recent macro-economic revivals (post covid-19 pandemic) – elevated inflation and higher interest rates, which has dampened EV demand based on the latest data (footnote#1). Large EV markets, such as China, are facing severe slowdown in demand.

In addition, unpredictable geo-political trade impasse (e.g., US versus China, EU v. China) also threatens to severely constrain critical raw-material inputs, and choke EV trade volumes.

Governments & the long view – A key contributor to long-range planning are governments and their productive engagement with new industries. In large, well-capitalized economies that are relatively free of state-control (the US, EU, Japan), private enterprises are driving most of the innovation, with some government support (example, loans to EV, battery and charging infrastructure makers). Automakers in the US, EU and mature economies that are currently leading EV adoption have benefited from this.

Chinese automakers’ selling price for EV is similar to the prices European automakers sell ICE cars for!

However, these automakers will find their hands tied as aggressive overseas competition heats up. Case in point – Chinese automakers’ selling price for EV is similar[17] to the prices European automakers sell ICE cars for!

A chunk of this anomaly can be attributed to the command-and-control structure of China’s (and similar) economies which enables national “champions.” However, governments and industry leaders in the US, EU and other free economies will be putting the economic success of their auto industries at grave risk without digging deeper.

What has benefited such an anomalous success in economies such as China, is a very long planning horizon[18] (10+ years). This has enabled companies in these economies to scale, often quite fast, capture a significant share of the nation’s market, and subsequently expand globally as well. Case in point – BYD, which started as a battery supplier in the late 1990s to mobile phone makers, and eventually expanded into making EVs. As of Q4, 2024, BYD is the largest EV automaker world-wide, having recently surpassed Tesla.

  • Market Demand Signals – Big changes are afoot in this area, especially driven by the pure-play EV automakers. From a channel only centered (i.e., dealership only) demand generation and fulfillment model, to an OEM driven demand-gen and fulfillment model (via OEM showrooms, e-commerce website, etc.). This has profound implications for the OEM, and its supply chain, despite resistance to move away from the dealership model by large players[19].

The new model lends itself well to a BTO (build to order), or CTO (configure to order) model of managing manufacturing supply chains. This can be a significant game-changer for the auto industry. Like many other channel-intensive industries[20], auto industry has traditionally suffered from excessive supply clogging in downstream supply chain nodes – at dealers and distributors, who are the preferred, and often the only way, to fulfill end-customer demand.

The new model lends itself well to a BTO (build to order), or CTO (configure to order) model of managing manufacturing supply chains; this can be a significant game-changer for the auto industry

With the ability to switch to a more BTO or CTO centric model, and tightly aligning or cutting out the intermediary (dealership channel), demand generation and, end-to-end demand through supply planning, manufacturing execution and final customer order fulfillment is now the purview of the OEM. This will lead to much better visibility and better controls over finished goods stocks, long lead-time parts and sub-assemblies’ supply, faster feedback loops for corrective actions to be taken to right-size inventory, and get closer to the product mix that is selling in the market.

In addition, the virtuous cycle of rapid feedback on product options (options’ desired/ not desired/ hated) and rapid flow of product gaps/issues into product engineering, will provide a clearer line of sight on customer needs versus automakers’ aspirations.

With a clearer picture of demand, the industry can shift away from ‘Build to Forecast’ and all its ills (including, working capital tied up in dealer inventory) towards a primarily BTO/ CTO approach, and its virtuous cycle (lower inventory, better fulfillment, better understanding of customers’ product preferences, and perceptions).

Any residual capacity, if available at the end of a plan period (quarterly, every 6-months), can be used to build products that are in demand, or need fewer price-reduction type actions to move the inventory downstream from “stocking locations” to customers, or the capacity can be held back for vital upgrades and maintenance, or just planned downtime (theory of constraints and its virtues). In fact, even with rising demand, there may be a need for proactive residual capacity planning (à la inverse of “yield management” used in the airline industry).

even with rising demand, there may be a need for proactive residual capacity planning (à la inverse of “yield management” used in the airline industry)

A singular opportunity – Getting this transition right

History has some datapoints for us. At the turn of the last century (1880s to 1920s) the personal mobility industry in the US was going through one such major change (from horse drawn carriages to cars). From over 200 automakers, the field collapsed to eventually 3.

How did the last 15-20 dynamic automakers fall, leaving the field to the Big Three?

Better marketing, better manufacturing processes (Ford’s mass-production lines), better mix management (no options or very few), others? That maybe a topic for industrial historians to dive into. What is clear is that the Big Three were able to scale up their production effectively, meet the demand of a growing base of new consumers (sales, re-fueling and service), and do it all while keeping price points attractive, bringing increasing number of customers into the fold, and achieving and maintaining healthy profits.

Today (circa early 2024 and over the next 5-7 years), both legacy ICE automakers and pure-play EV makers face big challenges as they navigate this significant industry-wide transition.

Neither the incumbent ICE automakers, nor the disrupting EV makers have an unsurmountable advantage over the other, although select EV makers – Tesla and BYD – appear better placed.

This transition, like any transition of this magnitude, promises to be full of peril and near-term pain. However, there is an extremely outsized opportunity of industry-wide leadership for those that ‘survive’ this transition, achieve target unit economics to attain profitability, are able to sustain profitable operations, and the many unforeseen and un-plannable macro-economic and industry-wide disruptions that may surface, and throw the transition off course.

The grand prize is to be in the Big “x” (EV) makers (“x” being the unknown – will it be 3 in cars? 3 in pickups? 3 among truck makers, etc.). These handful will dominate the electrified (or alternate energy) vehicle future.

Automakers that effectively utilize these ideas, stay laser focused on mid and long-term profitability (2 to 10+ years), and ensure that in all major decisions they stay the course on ‘real sustainability,’ will ensure that they remain a force to reckon with for years, potentially decades to come. They will also play a vital role in the world’s safe transition towards net-zero and net positive environmental goals.

For the road ahead – A unique opportunity to gain an operational advantage

The transition and resulting changes expected in the automotive industry globally over the next 2-10 years will be complex and fraught with risks. This transition will be anything but linear (maybe, sizeable transition from ICE to hybrids versus EVs comes first, EVs later).

Both legacy ICE automakers and EV pure-plays – will need to become more cost competitive, while doing a delicate balancing act – simultaneously ramping up volumes of some products (EVs, hybrids, etc.) and throttling down on other legacy ICE products, while meeting a myriad of other critical needs (investors, regulators, competitors, public and others).

This is a time for companies to lean on specialists.

Zyom specializes in providing the most cost competitive operations management support system that has directly supported companies in industries going through transitions. How?

Zyom specializes in providing the most cost competitive operations management support system that has directly supported companies in industries going through transitions

By helping companies effectively utilize their cross functional operations teams, starting with manufacturing and supply chain operations, pinpointing specific areas of operational improvement, and implementing the needed capability in full. In many cases, this has resulted in a significant operating advantage – making companies among the most cost competitive in their industry, while balancing the needs of being demand responsive with progressively increasing volumes.

Industry leading results – briefly

Utilizing Zyom’s capabilities, a networking infrastructure provider in a new vibrant industry segment, achieved 10x the scale (volume shipped) within 4+ years, while achieving and staying profitable, and becoming an industry benchmark for cost-competitiveness in the process.

A Fortune 100 electronics industry leader radically redesigned their cross-functional processes utilizing Zyom to minimize inventory related costs, in response to a single product transition resulting from new technologies that had cost the company $10s[21] Million.

Ready to get into the Driver’s seat?

What makes the set of capabilities that Zyom equips its customers with unique are its innovations in these distinct areas:

  1. Closed loop operational planning and execution
  2. Product and Operations cost optimization
  3. Smart collaboration across functions and value networks

The capability set delivered is based on the specific transitions and changes the companies are planning for, or faced with, yet general purpose to evolve as needs evolve. Utilizing these, Automotive and other physical product companies can focus on specific, tailored capabilities to attain, maintain, or sustain profitable operations.

Ready to gain an operating advantage, or just get a copy of the Paper from which the above information is extracted, please reach out to the author via comments, or via https://www.zyom.com/contact.php .

Automotive companies, seeking profitability at scale, will gain a unique operating advantage, while navigating the ongoing transition – the twists and turns in the road ahead.

[1] As an early draft of paper went to press (Dec, 2023), news was pouring in about a potential slowdown in EV adoption in the US; click here for more: Why America’s Car Buyers Are Rethinking EVs, Bloomberg, Jan 2024

[2] IC = Internal combustion (as in IC Engine) or fuel-burning engines

[3] EV (or BEV) = Electric Vehicle (aka, Battery Electric Vehicles)

[4] GHG = greenhouse gases; the ones that trap heat causing climatic temperature rise over time

[5] Concerns about global phosphorus demand for batteries https://www.nature.com/articles/s43246-022-00236-4

[6] Although many geographies with limited EV charging infrastructure (see link in footnote #1 earlier)

[7] Some regions experiencing bigger shifts (e.g., California, USA, Norway/ other Nordic countries)

[8] Notwithstanding, near term slowdowns in the US (footnote #1 above)

[9] Jim Farley, CEO of Ford: https://www.cbinsights.com/research/tesla-disruption-legacy-automakers/

[10] Also servicing and maintenance costs are higher – many of these higher costs for customer are ‘unplanned’

[11] Emissions measured as Scope1, 2 and 3 per widely accepted industry guidelines from GHG Protocol

[12] Based on research & analysis of secondary sources (news, industry articles)

[13] Mobile phone industry’s transition – feature-phones to smart phones, others (Computing industry transitions)

[14] Big Three = Ford, GM, Stellantis

[15] Oct 30, 2023 UAW contracts with Big Three

https://www.cbsnews.com/news/uaw-strike-update-gm-tentative-agreement

https://www.cbsnews.com/news/uaw-strike-gm-stellantis-tentative-agreement

[16] A handful such as Tesla and China’s BYD have resources, developed channels & profitability to ride it out better

[17] Stellantis CEO Sees the Rise of Chinese Carmakers Fueling M&A, Feb 2024 Bloomberg/ Hyperdrive

[18] IEA Global EV; Outlook 2023 Catching up with climate ambitions ; https://www.npr.org/2023/07/22/1189580644/china-dominates-the-ev-battery-industry-can-the-rest-of-the-world-catch-up

[19] Toyota: Standing pat with dealers; Oct 2022 https://www.cnbc.com/2022/10/02/toyota-ceo-akio-toyoda-electric-vehicles-happy-dance.html

[20] Parallels with the channel-inventory intensive nature of Computing (PC) industry of 1990s are worth noting; Dell raced ahead utilizing a ‘Dell-direct’ model leaving larger incumbents – HP (Compaq) and IBM behind

[21] To find out value targeted and trigger event please reach out to Zyom https://www.zyom.com/contact.php

Lead time – A Time to Refocus

Lead time metrics seldom gets senior leadership level attention outside of Supply Operations, until something blows up badly, such as the 2011 tsunami overwhelming Japan’s economy and its swift, cascading impact on automotive and electronics supply chains world-wide.

More recently, in the midst of the world-wide pandemic, there has been a spate of headline-grabbing bad news from large auto makers and other industries, all traced back to growing lead-time of parts/ component and products [i].

Auto makers, after seeing an unexpected surge in demand starting Q3, 2020, are now stuck in neutral, exposed to painful revenue and profit shortfalls due to semiconductor chip shortages over the near-term (calendar Q1 through Q2/early Q3, 2021), possibly longer – forced to idle factories and people, for months. Unexpectedly large (and growing) lead-time of critical parts are squeezing both top and bottom lines. All this at a time when auto, and other industries, are trying to get back to some semblance of ‘normal operations’ after intermittent and prolonged shutdowns earlier in the pandemic.

The current lead time debacle need not have been this bad, the pandemic and subsequent sharp surge in demand (across some segments) notwithstanding.

Lead time of products, key components and raw materials are critical variables which require timely and regular attention of (yes) CEO/ COO of any product company serving multiple geographies and relying on global supply networks. Now, with long and uncertain lead times in the form of persistent shortages, it has the CEO’s attention again.

How do we break out of this endless cycle of using lead time as a ‘reactive’ metric, and use it to gain an operating advantage?

What’s your Lead time? A Measurement Gap

Wildly swinging lead-times are usually the tip of the iceberg. Below the surface are many causal forces –

  • inadequate manufacturing capacity, new industries competing for scarce capacity and supply (e.g., auto industry vying for the same fab capacity used by electronics makers), or
  • gaps in planning and collaboration processes (with supply chain partners), missing system capabilities, or simply not knowing what innovations are available to tackle lead-time unreliability. This is the purview of this write-up.

One of the primary needs is the ability to measure the lead-time of products – quickly and accurately. To date, planners, buyers and analysts, even in larger, well-run companies find themselves leaning on spreadsheets and “notes” (from their latest calls with supplies) when asked –

“What’s the lead time of XYZ product?” – their own product, which is getting supply constrained.

Most often, the product’s lead time data in their ERP systems is dated. Makes sense – most of the lead-time info in their ERP system is supplied by the buyer/planner’s spreadsheet.

For component parts and critical sub-assemblies that are procured from suppliers, product companies are often totally dependent on the lead-time data they get from their manufacturing partners – CM[1] in hi-tech electronics product makers or Tier 1 suppliers in automotive and other manufacturing-intensive supply chains. With an arms-length relationship with the eventual parts’ suppliers (either Tier 2, or sometimes upstream), it’s not surprising that these numbers fed to the product companies can be dangerously stale.

Astute operations and supporting IT teams understand these gaps – that ERP is a system for ‘recording’ (storing) lead-time data, and not designed to measure lead-time. They need a different approach, different processes to capture this data quickly and accurately, and often, a new enabling system.

Astute operations and supporting IT teams understand these gaps – that ERP is a system for ‘recording’ (storing) lead-time data, and not designed to measure lead-time. They need a different approach..

Tackling unreliable Lead times – Focus on right Process & System

However, before embarking on a project to plug the gap – ‘fix lead-time’ data and systems, it’s important to identify any bottlenecks in the end-to-end processes from demand through supply planning and all the steps that lead to the subsequent shipments from suppliers. For supply chains that are impacted by long lead-times on components that are further upstream of their Tier 1 supplier (or CM/ODM[2]), analyzing this end-to-end process is just a start, and may not close the gap due to variability in component lead-times.

If you have not done this, it is best to wrap your arms around product lead times looking at processes and interactions with the immediate upstream tier of supply, at the get go – i.e., between the product company and its Tier 1 supplier (CM/ODM).

Once the process bottlenecks and disconnects are removed, the company is in a position to systematically measure the lead-time of their products from this vantage point (with Tier 1 supplier).

As soon as companies gain visibility and some control over product lead time, they can plan the more demanding and potentially uncharted territory of expanding these processes to include critical Tier 2 supply.

Design for Implementation and usage

Once process related constraints are identified and resolved (via suitable agreements with supply chain partners to share data), companies can proceed to the next step, namely – providing a system enabler that works in simple manner to capture lead-times.

Specialized solutions built on the cloud are ideal, since most processes are executed collaboratively. Ensure that the system is fast to implement and quickly gains traction with all users, including the supplier users. A “large, ERP mindset” (‘small army’ of people, ‘large’ implementation centered) and ‘hit-and-miss’ post implementation stabilization and usage, is a sure shot to an expensive failure.

Take the lead with your Lead time

A recent article outlines our findings of new approaches and innovations in process and system from younger, dynamic growing product companies that are successfully scaling operations while facing larger competitors, as well as larger technology companies with leading supply chain operations practices, both of which have navigated supply chain disruptions – large and small.

Use the information from this article to brainstorm with your senior leaders (CEO/ COO) specific areas that need to be re-thought through and acted upon, both at a macro and micro-process level

For example, in the case of macro-process, answer key questions such as –

  • How can product Lead times be measured systematically which is closer to reality (if not real-time)?
  • What is the end-to-end process and supporting system needed that can measure lead-times accurately?

What is the end-to-end process and supporting system needed that can measure lead-times accurately?

For micro-process dive into specific processes and system changes that are economically implementable, such as –

  • A Lead-time review process to identify lead time outliers and take corrective actions rapidly.

Ideas from the above referenced article can help you define the extent of your lead time challenges and opportunities, providing you an outline of a few key process and system areas that need to be rethought, redesigned (as needed) and retooled. Use these to bring your lead-time picture into much sharper focus, gaining an operating advantage in the process.

Lead time requires focused leadership on process and system. Falling behind is not an option.

*Please email contactus@zyom.com with questions or additional information needs.

[2] ODM = original design manufacturer (using in hi-tech electronics supply chains)

[1] CM = contract manufacturer (in hi-tech electronics supply chain)

[i] Reference: Chip Shortage Spirals Beyond Cars to Phones and Consoles Bloomberg, February 7, 2021
https://finance.yahoo.com/news/chip-shortage-spirals-beyond-cars-200059989.html

Uncertainty, Volatility and a new operating advantage

Uncertainty mixed with volatility, such as what the financial markets and various macro-metrics are signaling is an explosive mix, even for very well-run companies. In times like these what companies can earn (Revenue, Profit) becomes uncertain. One thing remains certain – there are many opportunities to learn.

But, when it comes to learning that’s useful for the operations of hardware product companies, there are far too many stories wasted on a few large companies and speculative, often misplaced assessments made regarding specific ‘traits’ and ‘tools’ of successful companies that helped them achieve operational excellence (a la Apple, Cisco, etc.).

Here are four specific, contrarian lessons from dynamic, younger companies that despite their smaller size and vulnerabilities took on much larger competitors, often successfully, achieving solid operating success.

You would find these useful for your operations to tide over this period of variability/ volatility in demand-supply, and utilize the operating capability outlined here to your advantage in 2020 and beyond.

From a new vantage point – Contrarian Prudence

Contrary to conventional wisdom, companies can learn a lot more from smaller, younger companies that despite their smaller size and vulnerabilities, took on much larger competitors and often prevailed, and attained an enviable customer and revenue base in a (relatively) short period of time.

Finding patterns in this group is more relevant, especially for younger or smaller companies and startups, looking to carve their niche.

As a part of a startup, Zyom, we have learned something quite counter-intuitive working alongside some dynamic, highly competitive smaller companies. One, in particular (let’s call it Company “RapidR”), stands out, among peers. We will use a sum-total of our experience at this and other companies to highlight a few key learnings, some quite contrarian.

This company was able to navigate through the last ‘Deep Recession’ in the US (2007-2008) while still a small company, and came racing out of it, scaling steadily and then at a furious pace, taking on, often successfully much larger competitors, and establishing a strong position for itself.

What follows are a few lessons learned working with this (RapidR) and other companies in the networking and broader Hi-tech electronics products industry, some of which fly in the face of conventional wisdom and “management best practices” Continue reading “Uncertainty, Volatility and a new operating advantage”

On Operations and Scale – A Key Driving Force

Making a company scale is vital. For hardware product companies (offering physical goods), this is especially key when technology is still in its early stages of adoption. Scaling early provides a solid competitive anchor in the markets they serve, making it harder for follow-on competition to achieve similar scale or size. Most research and case-studies have overlooked a very important piece of the scaling puzzle – scaling operations effectively and rapidly – both the Demand and Supply-side.

The author derives ideas and inspiration from an example of scale available to us in abundance – that of us, Humans, and attempts to answer the following question –

Why is it that some companies can achieve scale and grow, while others in the same or similar industry with promising products cannot?

Utilizing experiential evidence of scale from directly working with a company that scaled significantly in a short period, and utilizing direct and indirect knowledge from other companies, including past experiences, the author arrives at, what could be fairly counter-intuitive answers.

One specific capability in particular stands us in good stead.

What is this capability? How to develop & utilize this capability?

This article could give you some fresh ideas as you plan to scale in the new year (2019).

To Scale is Human – Evidence from the long arc of Pre-history

Travelling back into the mists of time, an alien would have wondered, looking at us – the Human species, whether we could even make it past a few millennia.

The Homo Sapiens were not the best equipped, the strongest, of great size or anything spectacular to have survived, let alone thrive on Planet Earth.

There were many competing “human like” species (Hominins), some stronger, many better adapted for the conditions they were living in (Neandertals in Europe, Denisovans in Asia, among others).

Somehow, we survived and they did not. Somehow, we were able to not only overtake the other Hominins on their home turf, but we went from strength to strength until, ours was the only surviving human-like species left.

Today, we dominate the planet, and have changed the geography of the planet, not just the history. When it comes to scale among living beings, there is no better example than us – Humans (1,6).

How did this come about? Many things appear to have happened along the way, corroborated by scientists. One in particular stands out – we gathered beneficial mutations – physical, cognitive and social – along the way.

While there are different views on how it came about –

the single most beneficial “mutation” that the H. sapiens evolved was the propensity for active collaboration with totally unrelated individuals.

This singular ability of ‘being able to engage with others in complex, social activities towards joint goals’ – scientists conclude – is one of the key reasons the modern human (H. sapiens) survived, outlasting other hominins (2,3).

Kolo-painting-Tanzania-rock-art-sm
Picture: Pre-historic Art – Kolo Painting (Tanzania) https://northerncircuitadventure.co.tz/kolo-painting/

So, how is this related to the operating success of the modern-day enterprise.

Using experiential evidence from a company going through critical phases of its development life-cycle, in a young market-space, we would like to share how this ability of being ‘peerless collaborators’ is a critical capability that separates the best run companies from the also rans.

Continue reading “On Operations and Scale – A Key Driving Force”

2013 Takeaways, Forecasting the Leaps in 2014

As we prepare for another spin around the sun, we found it fitting to reflect back on 2013 learnings, and take a glimpse at our crystal ball for the journey ahead in 2014

Takeaways – 2 short stories

Thanks to interactions with our customers, partners and other practitioners, the year was chock-a-block full of learnings. 2 highlights:

1) How does a young company know when they have entered the Operating or ‘O’-Zone?  Over the last 4+ years we had the privilege of watching a company (Ruckus Wireless www.ruckuswireless.com) blossom into a significant player in a newer segment of the networking industry. As a solution provider, we have worked and thought hard about the development lifecycles of high growth, high change industries for over a decade, wondering how & when a company knows that they have come of age, or entered the critical ‘O’-Zone, as we define it. O for Operating. As defined in a previous blog (http://bit.ly/MemoToChiefExec ) young Product companies that enter the O-Zone see big changes- from shipping 10s or 100s of units a month of a handful of products, they are quickly thrust into a bigger, rapidly growing Operation – 1000s, potentially tens of 1000s of units being shipped, and this transition can be a mean one. Managing this transition requires the ambidextrous qualities of careful orchestration as well as rapid, intuitive decision-making and execution.

This year we got some great data-points. Those at the forefront of Supply and Sales Operations functions– Order Fulfillment, Supply Chain, Channel Sales managers – enjoy a key vantage point to see this transition as it unfolds. This valuable insight (that a young Product company has entered the O-Zone) if utilized in a timely manner can be harnessed for a greater Operating advantage that can be sustainable over several years.

2) Where do the Highest Impact Collaboration initiatives spring from? How? – As young companies enter the Operating Zone of their development cycle, processes and systems related to collaboration cannot be left to chance or management directives. Systematic Collaboration becomes especially critical between functions that may appear to have conflicting objectives and metrics in the near-term – for example, Sales focus on Revenue Growth and Ops on Cost Control. However, collaboration cannot be regimented through management directives. The genesis of high impact collaboration initiatives happens usually in the trenches, and its success rests exclusively on the efforts of those that get the work done. Take the case of ProductCo – a Product Company (all names changed for anonymity).

Collaboration-Tasked

As volumes have grown quickly at ProductCo, fulfilling orders in a timely manner has become challenging for Operations. Shelley in Supply Chain Ops figures out that she ships a portion of products every week to the same Distribution partners and her colleague on the Channel Sales side – Julia – needs support. Support, so she can systematically compile sales data, interact with her Distribution partners effectively to understand downstream demand and provide quick signals back to Shelley in Ops, with all the data literally at her fingertips. Shelley (Supply Chain) runs this need by her manager, who points them to a systems vendor for brainstorming. Out of Julia (Sales) interactions with the vendor springs a collaborative system which will yield data and demand insights for the ProductCo in the near-term and on an ongoing basis. No major hullabaloo over the choice of systems, just a single-minded focus on working jointly with the vendor, across functions to improve the customer experience – through faster and accurate collaboration utilizing fresh data. All this happened because the initial thought to change came from within, was nurtured by a progressive management and collaboration culture, and effectively implemented working with a solution vendor as a partner.

Leaping forward in 2014.. and beyond

a) Collaborating systematically across functions and partners will gain traction going beyond cookie-cutter approaches : 2014 will see the onset of specialization in a critical collaboration area- Sales & Operations Planning and Execution. Dynamic companies will demand more than the cookie cutter approaches that have been offered to date. Industry specialization, smarter demand management methods, more tailored data and workflow linkages which will result in a faster and smarter collaboration between Sales, Supply Chain and their partners.

b) Leading companies and younger aspirants will refocus on profitability and away from a singular focus on Revenue growth only– Whether motivated by competition, financial valuations, cost of capital or more mundane business prudence, leading Product companies will focus back to product and operational profitability, and will be rewarded richly (http://reut.rs/1hagYpN ). Those that fall short will start seeing their valuations drop, resulting in erosion in market standing over time. Profitable Revenue growth will become the mantra of those who are at the head of the pack and intend to stay there.

c) System Implementation will capture center stage as a core success factor : As the botched rollout of the Affordable Care Act (ACA) website revealed (http://bit.ly/ObamacareIssues), bringing a website “up” is no guarantee of its success. Systems implementation requires a rich, complex set of interconnected activities to be completed in a timely and cost effective manner. This fate has also befallen many a system implementations in the private sector too. Since private companies can afford to throw a blanket of secrecy over such bungling, we hear only of the spectacular failures (http://ubm.io/JpGedn). 2014 and beyond will bring renewed focus to the arts and sciences of effective systems implementation.

Wishing you a Leap forward in 2014!!

Memo to the Chief Executive – Have you looked at this Critical Collaboration as you prepare for growth?

To The Chief Executive, Dynamic Startup,

The tide is turning. Channel partners and key customers are moving fast to your products..

Just as you were preparing to hear the beautiful humming sound of a well-oiled Operating machine shipping products out – you hear some ugly, jarring noises –

‘Hot-selling product has gone on allocation’

‘Big Channel partners are getting frustrated, as lead times start creeping up’

What happened? The Critical ‘O’-Zone

First, the good news – You have reached a major inflection point in your development cycle. You are no longer a small, obscure supplier waiting for the next large order. Orders are now waiting for you. Congratulations!

The not-so-good news – these orders will not wait long before they jump ship to a competitor.. Channel partners may divert attention to these competitors too.. So, what happened?

You just entered what we call the ‘O’ Zone (the “Operating” Zone). This is that part of your lifecycle (“zone”) when customers want to see you Operate like clockwork– shipping out 10x, 100x or more volume than before, yet meeting delivery dates globally, at attractive price points.

Image

What happens in this vital phase of your Company’s development cycle is going to be determined in a big way by a critical collaboration – Near Real-time Collaboration between your Sales and Manufacturing/ Supply Chain Operations (Ops) team.

What’s causing these pains? No ‘growing pains’ is not a good label. Here is a critical one–

Divergent metrics & its impact on Sales & Operations

Your Sales team is focused on hyper-growth – signing up new Channel partners, winning new deals with end customers despite tough competition.

They are totally focused on order volume (Revenue) metrics, and compensated appropriately. So, they make sure they open up the gates and get more customers, more partners and more orders in. But hold on!

Do they have enough time to pivot to their Ops partners – give them a heads up about new customers, what product forecasts will be like?

Your Ops team, on the other hand, has an increasingly complex balancing act as demand takes off. They can grow their Supply Networks – to an extent (signing up new sources – new CM/ ODMs, new suppliers, etc.) to gain extra capacity, but then they hit the brick wall – of ‘Cost’ centered metrics.

The strains start to show in interactions between Sales & Ops.

The offshoot  of all this is not pretty – As orders increase, Ops fulfillment can be in lock step only for a little while, after which demand and supply diverge. For Ops, it becomes a guessing game –

Q. What will Sales sell? How much buffer stock should we keep?

For Sales it becomes a hand-wringing exercise, as they field questions from customers –

Q. When will our orders ship? Why can’t you deliver it sooner?

With ‘Keep cost down’ as the guiding principle for Ops, it becomes a crazy dash to expedite when demand swings up with little notice, flying goods over instead of the more inexpensive modes (sea, rail or road) – depleting margins.

The human costs are bigger – anxieties mount as Sales & Ops try to play a game which looks somewhat like – catch the ball ‘blindfolded’.

Key to growth – A Vital, Systematic collaboration

In the O-Zone (operating zone) we need to play carefully – Pay special heed to the needs of this collaboration which is vital for growth –

Between Sales & Supply Chain Operations

To start off – Metrics need to be aligned.

How about rallying both Sales & Ops around ‘Profitable Growth’ metrics?

Let’s discuss it as a team at the leadership levels first. At a minimum – Sales, Supply Chain Operations, Operational Finance and you, should participate. The dividends of playing smart in the O-Zone are huge – Growth with Profitability – A distinct Operating Advantage. We, at Zyom, will be glad to help and explain further.

Collaboration – One small step.. A big operating advantage

Collaboration is powerful! Dan Tapscott, in his TED talk, explains how starlings, small birds, can take on larger predators when they fly in formation with hundreds or thousands of other starlings[1].

To date, the word ‘collaboration’ has been used profusely in business text and talk. However, we have barely moved the needle in product innovation, production and distribution that smart collaboration can result in. This is surprising given the transformation that has taken place in the technology world – from a ‘desktop centered’ to an ‘internet-enabled’ consumption, creation and distribution of information –that is fairly ubiquitous world-wide.

Poor responsiveness of far-flung supply-chains

A recent Economist Special Report[2] highlights how poor responsiveness becomes a big Achilles heel in extended supply chains with offshored or outsourced manufacturing. It points out how GE home appliances and Chesapeake Bay Candle have decided to ‘reshore’ manufacturing operations back to the US (from manufacturing sites in China and Mexico), to become “more responsive”.

In 1999, I had the opportunity of designing supply chain collaboration software for companies such as HP and Dell. However, the promise remained unfulfilled, due, in big part to the relative immaturity of internet technologies. That has completely changed in the last 8-10 years. As a part of a startup – Zyom – we have been hard at work trying to realize this dream of internet enabled smart collaboration.

At a recent webinar hosted by Zyom, Fred Harried, VP of Operations at Ruckus Wireless, explained – how collaboration was one of the key factors that enabled him to scale his Operations several X in the last 4 years, and how Zyom’s MozartCC system was a key collaboration enabler. Attached is a brief 6 minutes overview of some of the Q&A highlights from the webinar[3].

This example highlights how a small step – the innovative use of internet for collaboration across partners provided a boost to a startup in handling changes much faster, ensuring low inventory exposure for all supply network partners – a true Win-Win.

We are at the very early stages of utilizing the huge untapped potential of the internet for connected enterprises, their value chains and beyond – Collaboration may indeed be a disruptive advantage for Operations… more on that in the next blog.

Drop a line – Do you think collaboration could provide a competitive advantage? Fuel growth? Be a Disruptor? Or, none of the above.

[1] Don Tapscott: Four principles for the open world; POSTED JUN 2012; TEDGlobal 2012

http://www.ted.com/talks/don_tapscott_four_principles_for_the_open_world_1.html

[2] The Economist, Special Report – Outsourcing & Offshoring, Jan 19th, 2013

http://www.economist.com/blogs/schumpeter/2013/01/special-report-outsourcing-and-offshoring

[3] ZyomTV – Scaling Operations-Zyom Webinar Q&A Highlights (Dec 7, 2012)

http://youtu.be/GvSTb2nmoq0