Category: Operations

Pathways to Profitability – Learnings for Operations

Profitability has again taken center-stage when evaluating the near-term operational performance of Product companies, and their long-term prospects.

This article highlights some of our learnings & experiences regarding –

What are the different pathways to profitability, or growing profits?
What to watch out for?

These learnings are from the vantage point of Operations leadership, and for all who lead, or support cross-functional operations.

In the current backdrop of an ongoing pandemic, persistent inflation, the corrective actions being taken by central banks, its confounding impact and a widespread feeling of uncertainty, Profitability has taken center-stage again when evaluating the near and longer-term operational performance of Product companies.

This article highlights some of our experiences and learnings to answer the questions –
What are the different pathways to profitability, or growing profits (for companies that have achieved profitability)?

What to watch out for?

These learnings are for Operations teams, their leadership and all leading or supporting cross-functional operations (Finance, IT, Engineering).

Putting Profitability on the back-burner will burn your enterprise

Companies that pursue ‘growth only’ approach, without careful attention to “profitable growth”, risk losing sight of the insidious effects of factors that will erode eventual economic value of the enterprise. How? Growth, especially growth at a breakneck speed* invariably leads to poor quality of attention being paid to anomalies in ‘cost of growth’. Growing costs creep in even when a company grows in line with plans. With unplanned growth, growing costs become bad news that arrives too late, eventually derailing the path to profitability for larger and mid-size product companies alike.

A Company that loses their ‘path to profitability’ (including sustaining their profits), loses the chance to maximize its own value and provide maximum value to customers. Key questions for company leaders –

  • As you make Plans, especially those with longer-range impact (e.g., adding factory or warehouse capacity), do you have a clear picture of its impact – on existing customers, on profitability?
  • What if (.. list any of the many changes here) happens?

* Seen in the pandemic times circa 2020-early 2022 in a subset of IT goods and e-commerce industry

Manufacturing & Supply Chain Operations teams are core to any product company’s mid to long-term survival and profitability; their evolving mandate

Over the last 2+ decades, this author has observed the slow, almost inexorable slide downwards, of the role of “Manufacturing and Supply Chain Operations” teams in companies that design, make and ship branded products – across many industries (from Hi-tech electronics to consumer appliances, to name a few).

As ‘outsourced manufacturing’ in several industries, stripped away the ‘physical assets’ (machines, tools, materials) that Operations teams were responsible for, operations teams shrank – often, with good reason. Unfortunately, the Operations function’s importance as a strategic partner of the CEO, as a part of the executive team, shrunk too, overwhelmingly – except, in those organizations where the Operations leaders were strong change influencers and facilitators, and the CEOs and other influential leaders were clear about it. Clear about the fact that – Operations team and their leaders are core to the company’s success – whether manufacturing is outsourced or not.

This phenomenon was upended by the global pandemic starting circa early 2020, as factories, materials needed, ports, and people working these, froze up, and buckled under their weight of the pandemic.

Only those companies can serve growing markets profitably in the longer term, when key leaders and the CEO are clear that Operations team and their leaders are core to the company’s success – whether manufacturing is outsourced or not, and the Operations mandate will need to evolve

It appears that this, among other reasons, have resulted in a shift, which is yet a ‘work in progress’. Indeed, Operations teams are now playing key roles at companies, at least among stronger ones, often in new, strategic settings – in some cases, the Operations leaders getting invited to share their “supply chain insights” in quarterly, financial, market-facing calls, alongside the CEO and CFO.

This is the right time for Senior leadership at Product companies to work closely with their Operations leadership team and build out the necessary competencies and capabilities needed, so they are not caught flat-footed, and new ways of operating are developed and implemented, as the pandemic persists, and other major “supply constraining” events take place (war, weather-related/ climate-change induced disasters, and their aftermath, etc.), some of which may seem deceptively “further out”. Key question –

  • What key Operations capabilities and competencies are needed now?
  • How will the Operations function evolve – Can Ops step outside of the ‘cost control’ function (traditionally, a “comfort zone”), and contribute directly towards the ‘profitability’ function?

How can Operations step outside of the ‘cost control’ function (traditionally, a “comfort zone”), and contribute directly towards the ‘profitability’ function?

We have seen transformative results when Operations leaders have such a mandate. However, a ‘mind-shift’ is needed.

For example, during a time when one of the largest integrated Steel plants in India, Tata Steel, was facing severe input constraints, our founding advisor’s work to optimize operations directly helped expand profit contribution even as total output volume went down, resulting in a radical rethink of how to manage operations (International award-winning work by Dr. Gopal P. Sinha**).

A word of caution here – Do not go back to the old ways – i.e., diminished attention to the Operations function when these “economic clouds” start clearing up and “headwinds” to Revenue growth diminish.

** Franz Edelman Award for Achievement in Advanced Analytics, Operations Research, and Management Science
https://www.informs.org/Recognizing-Excellence/INFORMS-Prizes/Franz-Edelman-Award/Franz-Edelman-Laureates2/Franz-Edelman-Laureates-Class-of-1994

Deliberate & Intelligent Collaboration is the only way for any company to succeed

    While this is true for enterprises of any size, irrespective of their relative position in their industry, it is especially true for younger (growing startups and scale-ups) and mid-size companies that have to innovate and grow their products and offerings. “Collaboration” with a capital “C” can result in many intuitive and non-intuitive benefits. Highlighted below is one –

    Unexpected “value” and “insights” from suppliers and their products, especially those with a “collaborative” approach. Credible smaller providers (i.e., with proven success), may have a lot more to offer than larger providers, since “innovate and execute” is core to their survival and growth.

    For example, in one case, a Procurement executive at a growing, mid-size product enterprise was “surprised” how a system (provided by Zyom) significantly improved collaboration with Finance, reducing time in hand-offs between Ops and Finance, and eliminating errors which resulted in higher supply costs, in addition to other primary benefits. Question –

    • Have you explored any credible, new ideas in managing cost, and improving profitability with all your suppliers?

    Supply driven “Inflation” needs a different mindset & tools

      As the US, Europe, Japan and most free-market economies grapple with the most severe inflation in the last 4+ decades, it is an imperative to approach this ‘inflation’ cycle with a different mindset, in terms of operational execution.

      In this case, persistent inflation was triggered largely by a once in a 100-year pandemic resulting in massive, cascading disruptions to global supply chains, choking supply severely (demand largely intact after the initial shock), the resulting policies (government, central banks, even companies – inducing more demand), subsequent uneven return to normalcy (China, an important global player, has entered a dangerous phase 2 of the pandemic, as of December 2022). Geopolitical unease between the US and China, the attack on Ukraine by Russia, has forced speedy rethinking of supply sources, making matters very difficult for those operating global supply chains.

      The Chief of Operations always had a dual mandate – Right amount of flexibility at an optimal cost, which are at odds with each other.

      Flexibility implies flexibility in the manufacturing and supply network – capacity, inventory, etc.
      Costs include all product and operational costs that impact cost of goods sold.

      Increased flexibility directly leads to higher costs, often a step-function increase.

      In light of the evolving global pandemic and ongoing supply constraints (though, getting better), key questions for Operations leaders and the CFO are –

      • What specific decisions can Operations directly support to address the profitability squeeze (due to inflation)? How? (Latter will require new tools)
      • What key new metrics are needed? What traditional metric/s needs to be revisited?

      What specific decisions can Operations directly support to address the profitability squeeze (due to inflation)? How?

      Stop looking for (system enabled) answers in the wrong places

        To navigate successfully, in this new, rapidly changing environment requires a Rethink – especially regarding process,data and analysis support needed by cross-functional Operations teams. Do not expect a zero-risk mindset to work if you are trying bring on-board any new capabilities that your enterprise currently needs, or may not know that it needs. The right partner can help uncover these ‘unknown needs’. And casting off this zero-risk mindset is a prerequisite to drive profitable operations.

        Too many companies scale operations to reach a certain ‘threshold’ volume, only to decide, without adequate due-diligence, that their growth is being constrained because their existing ERP system cannot “scale up”, and that they need ‘add on’ ERP capabilities from the incumbent, or (worse) start implementing a new ERP system.

        This is a classic “integrated-solution out of the box” logical fallacy which is played upon by entrenched incumbent providers (especially ERP software provider and their cohorts). Why is this a fallacy?

        This is a classic “integrated-solution out of the box” logical fallacy which is played upon by entrenched incumbent providers (especially ERP software provider and their cohorts).

        Most ERP[1] systems have been laggards, even to date (2021 – 2022), in vital areas such as “Planning”, especially context-rich planning, which, ironically, is what the ‘P’ in ERP is supposed to stand for.

        Some ERP suppliers have plugged their holes partly with acquisitions. Despite this, they struggle and make their customers struggle, under the unending burden of their long, expensive implementation cycles, often, even for basic ERP (Accounting/ General Ledger, Inventory) capabilities.

        Unfortunately, since risk-aversion in adopting and implementing systems runs high among decision influencers, the malaise persists. “No-one got fired for buying XYZ” being the prevalent mindset (replace XYZ with any of the afore-referenced providers) – a system largely built to be a repository of transactional data, is stretched and patched to “add on” other capabilities – in the name of “integrated solution”, only to fall woefully short.

        Looked at another way- a largely “commodity” software with “General Ledger/ Accounting” as its core, has been stretched and bloated to be utilized for highly specialized and often strategic needs, without having qualifying capabilities or people to support the extensions (at the ERP provider). This is damaging in the short and the long run for the product enterprises deploying these, given the predictable longevity of these implementations.

        The questions to ask internally is –

        • Can we wait 2-3 years to get these critical operations management capabilities***? And incur the costs (of waiting)?
        • Do we understand our “systems” decision blind spots and biases?
        • Are we even looking at the right type of system solution or provider partner?

        *** 2-3 years based on actual data from Zyom. less than 50% probability of expected outcome in areas of planning, context-specific analytics, operations execution

        On Leadership, in brief

          With a seasoned Operations leader at the helm, who has seen a few operating seasons, and knows about “why” and “what” of specialized Operations Management systems, these de-risking debacles (“let’s do it all in our ERP system modules”) are pre-empted – i.e., cognitive biases and fallacies mentioned before, avoided or overcome. However, the very companies that need such leaders – growing mid-size companies or younger, faster paced scale-ups – do not have access to such leaders in a timely manner.

          The question for the CEO and senior leadership team is:

          • Do we have a seasoned Operations leader who not only understands the business needs (what’s needed in the supply chain, team) but also recognizes the unique data and system enablement needs of operations? If not – identify a suitable partner (internally, and externally).
          • Do they know (or have adequate support to identify) what types of software systems outside of ERP are available and effective to support Operations teams?

          Implementation is It.

          Perhaps this is the most important learning of all.

          In fact, this is where most worthy operational change goals can bite the dust, especially if “lets extend the (heck out of out) ERP system” mindset persists, when considering system enablers. This is where specialized providers (such as Zyom) create a better world for Product companies and its system users, by being laser focused on Implementation, no matter what. This is the only way meaningful changes are implemented and benefits realized.

          Once the initial “visioning” has happened, the hard and soft requirements have to be “implemented”, whether in changes to processes, or to software systems enabling the process change. This is where many, if not most, ambitious digital enablement efforts fall way short. Digital transformation remains a distant pipe dream.

          A sizeable volume of words won’t be enough to cover key learnings about such system implementations and how it is effectively integrated into processes (potentially, a future post). Needless to say, to attain/sustain/grow profitability, a new way is required – new collaborations and potentially new systems and tools.

          .. to attain/sustain/grow profitability, a new way is required – new collaborations and potentially new systems and tools

          Because, this is where the rubber hits the road, and things can go flat and flounder, or zoom forward, even soar.

          With a new 2023 starting, this is the right time to sketch out such a change, talk to such a partner.

          Reach out. Start a conversation.

          products@zyom.com

          [1] ERP (Enterprise Resource Planning) providers – SAP, Oracle, other larger ones (trademarks, etc. owned by the respective companies)

          Spreadsheet “Sprawl” – Are you reaching a breaking point?

          As companies grow, they face a different type of ‘growing pain’. Growing number and size of spreadsheets managing critical operational data, plans, decisions and more. We call this “spreadsheet sprawl”. Users and senior operations managers across functions have to be careful that this growth – in spreadsheets – is managed carefully. Left unchecked, this can lead to a breaking point after which the spreadsheets that previously supported operations can become a ‘burning platform’ – leading to severe unproductivity of key team members (planners, procurement specialists, managers) and far worse – direct, detrimental impact to the company’s operations. This Implementation Note draws from the Zyom team’s experiences to outline some early signs that such a breaking point is fast approaching, and what potential corrective action should be taken. And importantly, which remedial actions can make things worse.

          Implementation Notes

          As Supply constraints continue to wear down Operations teams across industries and the world –the last two years due to the pandemic, and recently with the invasion of Ukraine (in some industries), the last thing on Operations and senior leaders’ mind is the multifarious “spreadsheets” used by cross-functional teams (Supply Operations, Sales, Finance). Yet, our experiences have shown us that for companies that are growing, moderately or geometrically, spreadsheets used in operations are precisely where you should train your team’s attention to, for some key, quick wins.

          “Burning Platform” & the ‘breaking point(s)’

          In any growing product company spreadsheets are used, especially in the early, tentative stages of growth. Left unchecked, the number and size of spreadsheets start growing rapidly (we call this “spreadsheet sprawl”), often reaching a breaking point at which point it can quickly become a “burning platform”[1].

          Why “burning platform”? Excessive reliance on spreadsheets beyond a critical “ point” starts negatively impacting the immediate users (planners, procurement), and downstream management users who rely on data for planning and decision-making. That’s not all. There can be more serious knock-on effects to a company’s operations[2] if spreadsheets are not reined in at the right time.

          This note focuses on identifying some key* symptoms and early signs that your company maybe close to the breaking point of spreadsheet sprawl, and course-correction is needed quickly to avoid potential operational disruptions. This is also a cautionary tale for leaders in enterprises (Sales, Operations, even the COO) that using overextended spreadsheets is one of the ‘growing pains’ that you want to nip in the bud.

          This is also a cautionary tale for leaders in enterprises (Sales, Operations, even the COO) that using overextended spreadsheets is one of the ‘growing pains’ that you want to nip in the bud.

          * for a comprehensive list please reach post a comment or reach out to Zyom (contactus@zyom.com)

          how companies approach the spreadsheet “sprawl” Breaking point
          1. Large, Functionality “heavy” spreadsheets that keep growing – Spreadsheets that are increasingly consuming more time – of cross-functional Planning and Execution team, especially those responsible for Demand Planning & Supply Chain operations functions, and space – on computer, network drives, cloud storage, etc. Sometimes these spreadsheets can even slow down users’ computers. Questions to ask:
            Is it taking a long time for your spreadsheets to load up on your machine (including, machine becomes non-responsive)?

            Are you spending a lot of time making sure spreadsheets don’t ‘break’?
            For instance – fixing formulas/ macros so spreadsheets do not break down when making changes (e.g., adding new products)? If this is the case you could be flirting with the breaking point of severe “spreadsheet sprawl”.

          2. Top Analysts (Planners, et al) “running out of time” frequently when trying to get their jobs done – A key feature of this early warning sign is – a lot of time spent “maintaining spreadsheets” and too little time to conduct “analysis” on the numbers. As a younger product company, you can afford to get going with spreadsheets for critical operations data, while the company is still ramping up (number of products sold, the number of sales geographies, etc.). However, there comes a time when a lot of time is being spent “setting up” the spreadsheets even before any analysis, planning or results (e.g., reports/ charts) can be generated.

            For example, if you were to identify a discrete ‘operations’ job’ – say, ‘setting up all SKUs/ FG items’ to conduct supply planning for a new planning period, and it takes you more than 30% of the total time in setting up the spreadsheets, versus conducting the analysis/ generating plans , other key outputs, then it may be time to let go of the spreadsheets and knock on your leader’s door.

            The actual % number may vary depending on your growth trajectory, and organizational + behavioral issues. Issues such as – a strong operations sponsor, a reasonable budget for operations automation, how secure users feel on their jobs (e.g., “as a ‘top planner’ will it appear that I’m slacking off? Should I put in another 3-4 hours to get this done, and not worry about bringing this issue up?).

          3. Users “holding” on to their spreadsheets; IT team doesn’t want to “touch” the spreadsheets (“10-foot pole” rule) – Then there is the case of getting attached to spreadsheets. Users (on-the-ground planners, and curiously, even supervisors) may not feel like letting go of the spreadsheets. Perhaps due to the number of hours invested in their spreadsheet (or, number of companies traversed with those), and all the while it has stood them in good stead[3]. So, why toss it now? Ideally, they should run 2 sniff-tests. No, not someone else trying to “use” their spreadsheets, and resultant feedback. Here are the two:
            1. Ask a senior/supervisor if they know a better way (or tool) – Experienced Operations leaders can help assess if the team is reaching the breaking point. Knowledgeable leaders know that ERP based automation is not the solution, despite the various ways in which ERP makers have “platform-ized” their solutions. Leaders with insight know that specialized planning tools (“Advanced Supply Chain Solutions” etc.) are expensive, and often hard to implement – especially, if offered by ERP-first providers. The best approach is to look for a “capability-specific” solution which is cost effective (industries served, operations models served). Best-of-breed “Planning” solutions are fair alternatives. However, this maybe an expensive route, and not provide flexible capabilities that you need.
            2. Ask IT team member to ‘review’ your spreadsheets – At a small, dynamic company, a senior IT team member shared an anecdote which nails this point-
              ‘When [Lead Planner] wanted me to ‘take a look’ at their planning spreadsheets, to see if I could help with automation, I felt like saying– “won’t touch it with a 10-foot pole” (tongue in cheek).’
              Implying, when the complexity and volume of the spreadsheets (number of sheets in a file, number of spreadsheets, formulas etc.) is enough to deter even the most intrepid IT folks, then you know you are closing in on the ‘breaking point’.

          4. Large (and growing) Spreadsheets shared across functions & partners (suppliers, et al) –
            When planners/procurement team members in companies that make physical (hardware) products are dropping large and growing spreadsheets into “network drives” or over “MS-SharePoint” or over email (to share with partners outside their enterprise “four-walls”), or doing custom development in Google Sheets, then prudence and our experience shows, these team members are headed the wrong way, accelerating towards, instead of away from the breaking point. It’s time to pause and ask –

          Have we (or I) agreed with any of the points above? If you have, then stop.

          You maybe be shaving pennies (using spreadsheets) when you can turn on a dime, deliver outputs smart and fast (using a software system) and give your company a lasting operating advantage.

          It’s time to quit the spreadsheet(s).

          [1] users forced to “jump off” into new tools/ automation without adequate due diligence to assess needs and map to a superior solution

          [2] Accuracy of Inventory, matching for Ops finance, among others

          [3] There could be other reasons such as jaded in a previous role trying to implement automation which didn’t work

          Operating Parts’ Supply Chain in Uncertain times – Key Learnings

          Parts are super critical. For Product companies the sum-total of all parts is what ensures that the product using the part is ready to make and ship.

          Many parts shortages can be painful – economically, and what your logo stands for to the markets it serves, and needs to be attended to quickly but carefully.

          This article starts with a short story (fiction) based on real life events, of a major planning dilemma – faced at the onset of the pandemic in the auto industry, and weaves its way across Billions of dollars lost in a short period of time by many companies. Not so for a few other industry peers.

          Why? What happened?

          This article underscores the critical role of operations planning and execution, and highlights key elements that can be learned, and applied quickly to improve the supply chains of parts (components/ sub-assemblies), ensuring uninterrupted supply, no matter what.

          Parts, parcels and people – these three words pretty much summarize the biggest and sharpest pain-points that have come in sharp focus as global supply chain convulsions continue in the aftermath of the onset of the covid19 pandemic.

          Sometime missing parts can make a hole in your plans to ship product. However, if parts shortages are chronic and unrelenting, it inexorably leads to big holes in a company’s revenue. Left unchecked, it can get quite grim.

          This article is focused on Parts and cursorily touches on the “people” aspects.

          Parts are super critical. For Product companies the sum-total of all parts is what make the product whole, and ready to make and ship.
          Parts shortages, especially those that have a big impact across many products are painful – economically, and what your logo stands for to the markets it serves. And it needs to be attended to quickly but carefully.

          “A major Planning dilemma”: of wait & wants – A short story, an outsized impact

          First let’s start with a story (fictional) based on real-life events.
          Its Q1, 2020, and the pandemic has hit the world – first landing in a few countries, it soon spreads like a forest fire throughout the world. In its wake, it leaves ports, factories and other nodes and links of the global supply chain frozen out.


          Now, let’s hone in on one industry – the Automotive industry – that’s been recently feeling the tailwinds of growing consumer demand.


          Jill, (fictitious name) head of Materials (parts, raw materials) Planning and Tier1 Supply, is feeling anxious. She brings this up again and again with her supervisor – the SVP of Operations at AutoMax1 – a traditional automaker (OEM) that’s been turning its fortune around over the last year or so.
          A simplified graphical representation of an extended supply chain with multiple tiers of supply is shown here for reference (Auto supply chains are extended, multi-tier manufacturing supply chains, excluding distribution-only nodes)

          Jill – “..Bottom has fallen out of the demand .. what should we do with the open P.O.s to the Tier1 suppliers?”

          After quick deliberations, spreadsheets and even looking at systems, a decision is made.

          Managers (across functions) – “Let’s just cancel the orders”.

          Jill – “All the open orders, or a few?”

          Pause. More discussions. Deliberations.

          Managers (with inputs from senior leaders) – “All”

          ..

          All Q1 and a big chunk of Q2, 2020 turns out be worst case scenario for demand, as predicted.
          Auto industry demand crashes.
          Other peers of Jill, and the SVP Ops at other car companies largely take similar or same actions.
          ..

          Its late in Q2, 2020, and an anxious Tier 2 chipmaker calls in and pitches a contrarian scenario –

          Tier 2 chipmaker – “Demand’s picking up .. it may pick up too fast .. we don’t know yet. Do you want to reorder (your chips)?”

          Again, long pause. Jill is not sure. SVP of Ops is torn. Even management is at sea.

          Finally, they decide – “no Thanks .. we’ll wait”.

          Not all agree, but they are not the assertive voice/s.

          ..

          Its late in Q3, early on in Q4, 2020 and demand is indeed picking up.

          Exciting news for AutoMax1 management? Not really.

          Jill and SVP of Ops are super anxious. They may have shot themselves on both their feet with their decision a few months ago.

          They have already been testing the waters, started communications with the Tier1s and some key Tier2 suppliers – the ones that make the microcontrollers, or get it manufactured by the Foundries. These are the chips that go into nearly everything in their cars.

          Suppliers have NO inventory. Nothing meaningful for a very long time – months, probably quarters.

          And the foundries are not heeding their (the Tier2’s) calls for help either.

          AutoMax1 gets their COO (even the CEO’s ready) on the line with the Foundry chief.

          COO – “You’ve gotta help us out .. we need to ramp up and need these chips now.. This can’t wait a week let alone the months that you are quoting us”.

          Chip Foundry Chief – “Sorry, we are really super booked. We cannot even fulfill all open orders from (our larger) consumer electronics companies.”

          “They came way before you .. placed hard orders, and reserved capacity”. In effect, giant chunks of capacity are now gone.

          AutoMax1 COO – “what can you do?”

          Foundry – “Nothing really in the near term .. nothing material for the next 2-3 quarters.. we’re nose to the grindstone getting these orders shipped .. we’ll call you as soon as we see capacity open up ..”

          A Famine

          And that pretty much sums up what happened to a giant chunk of the auto sector in the 2nd half of 2020, and Q1, 2021, leading up to the President of the US and heads of state getting involved in ‘battling the Auto chip shortage problem’. Nothing helped. Not for the near to fuzzy midterm[1].

          The chip industry, a notoriously cyclical industry, with high booms and terrible busts in demand and pricing, with its gigantic, capacity-intensive fabrication plants (fabs) were booked solid with orders from the consumer electronics industry, that came way ahead of these auto orders.

          In fact, these competing orders had a higher priority for the right economic reasons – higher margin consumer electronics orders, that use leading edge technology, versus the Auto industry that’s been on the lagging edge for a while. Lagging, despite the move to EVs accelerating – with Tesla et al. clearly gaining ground in the auto-market through their simpler, super popular EVs. Anyway, that’s for a later write-up, not this one.

          What happened next is quite well known. A mini-nuclear winter of sorts for the auto industry..

          Thanks to chip shortages painful shutdowns ensued, first by car category (with lower or lower margin demand), then multiple categories, then manufacturing plants, then entire groups of plants and virtually most (traditional) auto-maker plants across giant swathes of the US and Europe.

          A Feast (almost) in other places

          Meanwhile, over in Japan, Toyota is humming along – and by the end of Q1, 2020 even guided a rosier shipments (Revenue) picture for the whole year.

          Tesla, a tiny dot in the auto-manufacturing firmament a few years ago, is growing shipments every quarter – still small compared with traditional car industry volumes – but ramping up seriously (roughly 80% volumes year over year). And they seem to be unfazed too. In fact, Q4, 2021 turns out be eye-popping one – Tesla shipping way more than anyone would have predicted.

          And that’s what brings us to the $500 Billion dollar question[2].

          What happened?

          How could Toyota, a large automaker, be resilient throughout 2020 and early 2021 (some of the pixie dust appears to have worn off since)?

          It’s after all a traditional automaker with plenty of gas-guzzlers in its portfolio (i.e., cannot participate in the EV spike in market demand).

          What has Tesla learned about making cars, parts and sourcing for their factories which their 100+ year rivals with their huge volumes (i.e., purchasing power) have not?

          Learnings

          First off – No, this article is not about the auto industry, the EV leadership of Tesla etc.

          This article is about finer operating points (operations planning & execution) that many, even with decades of supply chain and planning experience, appear to have missed.

          A clear disclaimer – what’s written here is a hindsight-based learning, a post-mortem, not specific to any industry. Sincere attempts have been made to remove all hindsight bias.

          No claims are being made by the author (or teams he works with) that they could have done a better job at ‘predicting’ the rapid downswing in the ‘early pandemic’ days, and the rapid upswing in demand soon after, for those sectors that faced what’s been described above (including the auto industry).

          This article focuses on some key supply chain operating principles and practices that may have to be dusted off, looked at afresh if not challenged outright, and other evolving approaches to managing manufacturing-intensive supply chains.

          Here are a few –

          1. Identify key parts – This is not a straightforward exercise of looking at your highest dollar parts.
            What multi-variable analysis needs to be done to determine “key” parts?
            What additional ‘decision filters’ should be applied?

          2. Use “lean signaling” not lean inventory approach especially for key parts – Ideally disintermediate your supply chain (i.e., reduce number of tiers) at least for the newer products, if you can. In either case – with long, extended supply chains (Traditional automakers like GM, Ford, VW et al.) or shorter chain ones (like Tesla), ask this:
            How can I rapidly collaborate (not just communicate) with my significant N tiers of supply (where N is 1, 2 .. whatever)?
            What are best (if not optimal) inventory levels for key parts made by the TierN supplier?
            Is there a better way than legacy tools (EDI, spread-sheets like MS-Excel, Google sheets, etc.)?
            Are internet-based supplier portals adequate?

          3. Determine inventory levels for key parts – Toyota built strategic buffers for their key parts where and when needed. Toyota instructed its suppliers to carry months of inventory where previously they used to carry weeks’ worth only, the latter being in line with lean principles that is core to Toyota operations.
            How to determine what inventory levels are right? How & when to adjust?
            What analysis needs to be done rapidly? Which analysis can have longer cycle times?

          4. Build real ‘relationships’ with suppliers (Tier2 and their sources, as needed) – Component (part) makers would love to work directly with the product makers (the ones whose logo goes on the product). This could be especially critical for mid-size and smaller companies that cannot command part makers’ attention via large, strategic buys. They know full well that one such wrong decision can put them into a deep working capital hole for a long time, or push them into extinction.
            Which component makers? What meaningful processes can you collaborate on?
            What are “must-haves” to make sure collaboration works (data, process, decisions, metrics)?

          5. Plan for business continuity all the time – Business Continuity Planning (BCP) is not just for isolated worst-case events, such as the Fukushima disaster that froze auto supply chains, Taiwan earthquake that rattled consumer electronics – including the large behemoths. BCP is an ongoing process effectively used by those that are succeeding to secure the supplies needed, no matter what.
            How will you do this (process, people, parts, partners)?
            What parts to focus on? Which products?
            Which ones to defocus from?

          6. Understand your key parts very well (passing acquaintance isn’t enough) – Get to know the technologies that go into your key parts, especially complex/ line-stopping ones very well (e.g., batteries for EV makers, microcontrollers for automakers, WiFi chipsets for wireless equipment makers, etc.). Build the technology skills needed so you can turn on a dime and change product design if a part’s supply shortage becomes persistent.
            Which technologies (chip design, etc.)? What skills? How to motivate learning?

          7. Design for resilience and responsiveness – Back to the story above:
            Jill, the planning lead and her supervisor, the SVP of Ops were at a standstill and could not take decision to increase the supply even when the chipmaker dropped hints. There could be many reasons. Here are a few –
            • Role of planning in the org: does it have the right level of visibility and sway with the executive team? i.e., could they have pushed a more aggressive supply plan without being worried about untoward consequences (i.e., losing faith of the management, or worse)
            • Skills – Has Master Planning/ MRP/ Capacity Planning and related supply side operations planning skills been rethought through and retooled, especially for extended and evolving supply chains? Has demand planning been rethought through? Planning must be thought through for end-to-end Demand and Supply Planning. And then rethought through periodically in light of changes.
            • People-centered Processes and collaboration – Did AutoMax1 have a comprehensive process (including S&OP) which they could use to avoid bias? How good was their supplier collaboration to ensure clear supply signals – strong and weak signals (e.g., chipmaker signals noted above)?
            • Tools – What’s the burden of legacy? Were they going to war with bubble gum and duct-tape to put together their plans? Many legacy systems are a lot clunkier, difficult to use and error-prone, given cloud and internet-native tools can be designed and tailored for operations. And they suck up not only time but a lot of people too.
            • System – Were they educated about responsiveness which is not a demand side or supply side approach but an end-to-end approach? End-to-end from Demand through to Supply planning – not as ‘islands of Planning’. Execution signals have to be inbuilt into Planning.
            • Scaling mindset – A scaling mindset means looking at the future to be an opportunity to grow in a planned manner. How do planners avoid the “hunker-in-the-bunker” mindset that’s the default, especially in operations planning when faced with extreme uncertainty like what happened at the onset of the pandemic – circa Q1, 2020?

          Question Assumptions

          When faced with unprecedented uncertainty past assumptions have to be questioned.

          Good planners know every plan has in-built assumptions.

          Great planners know when to question those assumptions out aloud, so management gets it loud and clear. In the above case of Jill and AutoMax1, did they listen to the skeptical, dissenting voices among procurement and supply planners. The planners/ procurement team members may want to understand the signal better from the supplier/s (the chipmakers saying demand is ‘perking up’) before giving their procurement plans a massive haircut.

          Great Operations leaders know Planning is a critical ongoing process that requires smarts and creativity, and focused attention of the top management (CEO, COO, Leaders of Operations and Sales, Products).

          and,

          The more inputs the better, especially from outside the 4-walls of the company, e.g., Sales channels, Suppliers, et al.

          Most importantly, the age-old truism – not to be wedded to “a Plan”.

          Plan, by its very nature is a point-of-time output of the process and needs to keep changing to support smart execution.

          While nothing is better (for planners and senior strategists) than having a “run rate” product base to plan, those deep into planning and its subsequent execution, and have seen a few seasons (i.e., are experienced) know that ’stasis’ (standstill) is the absolute opposite of good planning – the wrong place to be. It’s after all a “rate”, i.e., change over time.

          Companies that use this time of uncertainty to upgrade their team’s skills and equip themselves with better processes and systems based on learnings above will have all the pieces in place to go for a stronger rebound when demand turns around, and catch the downdraft in their demand much earlier, preventing grave preventable losses (E&O among others).

          [1] Derivative of estimates the current size of the chip industry and the auto-industry losses

          [1] Estimates vary from 2-3 quarters to 6-8 quarters out from late 2021

          Acknowledgments:

          The author would like to thank Colin Todd and Fred Harried for some of the learnings mentioned, and to all the (customer) colleagues at Cambium Networks for in-depth discussions and working sessions with Zyom on some of the topics mentioned in the article; All of the above contains copyrighted materials from Zyom Inc. Please acknowledge this when using any of the content.

          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

          Hindsight 2020 – On Leadership & Choices

          A short story & observations

          In the late 1990s, I was fortunate to be a part of startup that revived an old area and grew in leaps and bounds – customers, countries we served, and other financial metrics (Revenue/ Growth/ Profits).

          As a young consultant, I couldn’t have asked for a better work or work-place..

          We were growing rapidly, and the company leadership thought it best to bring someone from the “outside” who would guide and manage us- and in turn make a better, higher performing team. We were a group of high cognitive energy bunch and company ‘elders’ observed that entropy (disorder) was setting in.

          The choice appeared good on the surface. KC (made-up name) brought a different experience-set having worked at large, well-known consulting companies. However…

          To cut a long story short, it didn’t work out. Soon the new leader started sapping the energy of this bunch. Out of a plethora of objective reasons why he failed, following stand out –

          1. Insecure – Since KC didn’t have enough knowledge of the ‘space’ we were in, he tried to ‘wing it’ initially with nominal success. But, as he (soon) started losing the respect of the team, he started resorting to toxic techniques (predetermined poor personnel Reviews, etc.) and faulting those who expressed their displeasure with his “leadership” and the lack of commitment to learning the domain where we served.
            Luckily, the organization still had a ‘Startup’ mindset and it soon dawned on the top leadership that a poor choice has been made. He was given a generous number of choices to prove his team wrong, which he failed repeatedly.

          2. Divisive – One of the really clever tactics that this leader utilized was creating schisms in the team. He would pander to some, ignore others, and to the remaining he would become quietly and not so quietly, offensive – passing remarks to undermine them, or some other underhand techniques. This may have helped him win a few ‘converts’ and even last longer than he needed to.

          Thanks to the growing ‘unrest’ among the rank and file, and a top level leadership that processed all the “data” (failings) and acted with dispatch, he was relieved of his role as leader of the team soon, after ample opportunities were given to him.

          As America heads to the polls today (November 3rd, 2020), here’s an observation from this experience –

          the highest form of leadership starts with ‘self-leadership’.

          As citizens of a free society, we have a very big stake in how we act – namely Vote, and hold our leaders accountable. Lowering our expectations will take us down the road of self-destruction fast.

          There is a couplet from a fifteenth century poet-sage from India which offers timely and timeless advice for leaders. Roughly translated, it says something to this effect –

          When Associates, Caregivers and Guru, Speak sweet, from a place of Fear

          Know -For your Kingdom, your humanity, your body, speedy destruction is Near

          – Tulsidas

          Be Well and Go Vote today!

          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”

          Transitions and Turbulence – how to ride it out?

          Often product transitions in product companies lead to serious turbulence. In product and innovation driven companies – such as hi-tech electronics and consumer goods, this can become a traumatic experience with big tangible losses in excess & obsolete inventory & near-term lost revenue. The longer term lost market opportunities and customer goodwill can have a corrosive effect on its competitiveness. This need not be the case. This blog provides a case summary derived from a real-life Product transition experience at a dynamic consumer goods company, and what the company learned through a methodical postmortem collaborating with an external partner.

          Often transitions lead to turbulence which becomes a traumatic experience for all involved.

          This need not be the case. As a real-life scenario described below reveals, with a concerted effort a consumer goods company was able to figure out the causal factors which impeded the success of a product transition and how they could preempt it in the future.

           

          3in1-fall-plan-ride-surf

          The scenario and the solution approach have broad applicability in the hi-tech electronics and other product innovation-driven hardware industries as well.

           

          Transitions are of various types – sometimes these are driven by technology-changes, sometimes due to competitor actions, and on other occasions due to product refreshes which may result in phase-out or reduction in volume of older products.

           

          In this note we will cover the transitions that Product enterprises go through when they make major changes to their products or product lines in the context of this case.

           

           

           

          Wipeout in Transition – A Consumer Goods Case summary & Key Takeaways

          A large consumer brand faced the deadly effects of a product line transition that went totally off the rails. Upwards of $20MM (USD) in losses (inventory obsolescence and write-downs) were recorded.

          wipeout-surfer-nicolas-colombo-v2

          Management recognized this event, and the fact that this was caused by a single product transition – in other words, a single product event. They wanted to get to the bottom of this fast.

           

          There were hunches and hypotheses, but one of the key decisions made was – let’s have someone from the outside do an operational postmortem of what went wrong and determine what it would take to ensure this didn’t recur in the future. An intensely collaborative exercise with the external partners uncovered two major takeaways –

           

          1)     Trust factor depletion – there was a major erosion of trust between Sales and Operations (Procurement & Supply Chain Ops) that took place over a period of time in the recent past before the product transition debacle.

           

          At that time, Product demand was perking up and was being diligently reported by Regional Sales teams, yet Operations apparently got cold feet when responding to the demand – not fully ‘comfortable’ with the ‘optimistic’ numbers from Sales. Shipment volumes were consistently lower than the order volume – resulting in long lead-times, ‘unhappy customers’ and potentially ‘lost sales’. While the part about ‘unhappy customers’ and ‘lost sales’ could not be conclusively established, it was clear that the Sales teams were unhappy with the lack of fleet-footedness on the part of Ops when demand “signals” from Sales were being explicitly communicated to them.

           

          Sales made their displeasure with Ops clear to senior leaders. While such Sales-Ops mismatch on demand is not uncommon, the contentious nature of the recent Sales-Ops interactions and the fact that volumes shipped by Ops was always chasing the growing demand, made the pendulum swing too far to the other side when the next change hit, namely this product transition with several technology changes in the new product.

           

          Takeaway: when the ‘trust gap’ between Sales & Ops grows noisy, it’s time for leadership to pay attention and act on the data-points.

           

          2)     A Transition Planning process and owner and a tool – Except for quarterly business reviews, Ops glitches – such as a missed delivery, or growing lead-times – rarely get top leadership’s attention, unless it directly impacts a large customer/channel partner or revenue. As such these operations ‘micro-events’ are stashed away in corporate (tribal) memory as one-offs with lessons learnt based on isolated reviews. This works for most garden-variety operational issues, most of the time. Not so for transitions.

           

          Transitions are a critical time and a critical driver of future revenue from new products.

           

          In the frenetic activity to launch a new product with new technology-set, a big process component was missed – How to plan the transition? What’s the ideal way to transition? What if things went off the ‘desired’ course – push-out of launch dates, lower shipments in channel than Sales plans? How to navigate the transition in such cases? Even experienced Ops teams often miss this. A conscious effort has to be made to chart out the transition process and more importantly all the moving parts involved –

           

          • What is the Product’s Transition Plan? When & how to change it?
          • Who is responsible for transition planning?
          • Whose inputs are needed when making changes?
          • How do changes affect decisions and plan? How to communicate decisions and plan changes?

           

          Key Takeaways: First and foremost a Transition Planning process needs to be defined working across functions.

           

          Next, the ownership of the Transition planning process needs to be clearly defined, including the cross-functional team members.

           

          Finally, there is a need for a tool – a digital transition planning tool which companies can use to generate transition plans fast, plan & decide among different ‘What-if’ scenarios, re-plan in real-time if needed  and distribute the resulting actions across all team members quickly so follow-up execution can be completed before it’s too late. A metaphorical surfboard to ride out the transitions.

          2010_mavericks_competition_klein_bearbeitet-v2

           

          Think about it. In day to day Operations, most of the planning resources and energies are deployed on products in various stages of volume production. However, for critical product transitions which can be a make or break for smaller companies, we think the same (Volume Production Planning) approach will do.

           

          No it will not.

           

          Product transitions have their own patterns and noise – as this company found out too late..

           

          With careful thought, planning and attention of the right cross-functional team guided by Operations, companies can smoothly ride out a transition “wave” and catch the next one to go higher.

           

          (Thanks to Alpana Sharma and John Duvenage for edits and organization)

          What’s the demand? Solution to a most demanding enterprise

          Determining Demand – A hard problem. Reasons why this is hard problem. Why current systems are a bottleneck. Thinking anew about Demand and systems needed – in ever intensely collaboration-dependent enterprises & their value networks

          A hard problem – What’s the demand?

          Pinpointing what is the real demand that a product company has to build to – this is clearly one of the hardest Operating problems in the Hi-tech branded products industry. Let’s try to uncover why? Why focused energies need to be expended at the senior-leadership level to ensure that the right approach and yes tools are applied to solve this problem.

          Different Roles, Different lenses

          Experienced industry practitioners well know “Demand” for a company’s products may mean different things to different functions.

          final-blogpic-pinpointing-demand-zyom-img_5752-v2

          For the CEO this starts with the current and next year’s target, crystallized out of a periodic business planning cycle (Annual, Quarterly) into target Financial numbers (Dollar forecast) – often a range. In the best cases, this is arrived at collaboratively with inputs from Finance, Sales, Marketing, Product Engineering and Operations. Although, we have some data-points to believe that Operations maybe involved sub-optimally to the detriment of the company’s execution to its business plan.

          For the Sales leader this means current Quarter’s & next quarter’s Sales forecast.

          For Marketing, this is looking at Product Mix and plan based on product launches, transitions, events.

          Engineering cares most about baking feedback from recent launches and providing reliable launch time-frames.

          For the Operations leader and team this means determining – what is the net demand that has to be built and shipped in the current & next cycle (monthly, quarterly) and prepare in case demand flexes. In essence answer –

          What is the net Demand that Operations needs to build or buy for?

          As plan adjustments are made based on how Sales is tracking to their numbers and other factors impacting demand, Ops needs to answer – What to plan, source, procure, build, ship, deliver & manage the myriad changes to – so that quarterly financial numbers are met or exceeded.

          Often, this is made harder by the fact that Operations are downstream recipients of the company’s Annual or Quarterly Plan, sometimes not pro-actively involved at the get-go in the business planning process.

          Degrees of difficulty

          What is the demand that Operations should execute to, becomes harder to answer due to many factors. Let’s consider these –

          • Young companies in a growth mode go through many changes rapidly – growing the number of products, establishing the number of Channels they sell through, the number of customers and countries they deliver to. This means that the structural value networks themselves are changing, sometimes quite frequently.
          • In addition, the demand from these different Sales channels and direct customers is fluctuating. By Sales Channels we mean all the indirect channels through which a company sells. This includes Resellers, VARs (Value Added Resellers), Distributors and VADs (Value Added Distributors).
          • A system to support Operations do this is very often the Achilles heel. Experienced Operations leaders know ERP provides valuable Supply data & some input data to determine demand, however they cannot depend on their ERP systems alone for fast and accurate planning and re-planning for Demand.

          Demands thinking out of the box

          ERP is not a panacea or cure-all. Most experienced Operations leaders know they have to think and act out of the ‘ERP box’ if they want to get to their demand picture quickly and accurately, in an environment where change is a constant.

          Operations leaders know they have to think and act out of the ‘ERP box’ .. to get their demand picture quickly and accurately

          To make this happen, experienced Operations leaders direct their teams to extract data from ERP, merge it with other data and intelligence from outside such as emails, in their own offline spreadsheets and then determine demand. However, they dread this and know fully well they can only go so far in managing their demand with spreadsheets.

          Spreadsheets are errors prone and cannot be relied on for collaboration.

          When any of the inputs change (say, inbound P.O.s), inputs that are needed to determine real customer Demand to be fulfilled – the spreadsheet(s) go through a domino effect and all numbers become incorrect instantly. The process to change the data in spreadsheets to re-compute demand is painstaking and does not meet the cycle-time or accuracy needs of growing enterprises in competitive markets where collaboration is a pre-requisite.

          Operations teams need a specialized system. A system that can rapidly reflect all upstream changes (such as Sales execution, Marketing actions) impacting demand.

          Operations teams need a specialized system.. added on top of ERP. .. cannot be done in your ERP system

          As we head deep into Q4, the ability to rapidly generate “Demand for Build” reflecting changes and shifts is a critical one – and these capabilities need be added on top of your enterprise systems like ERP. It cannot be done in your ERP system.

          Dynamic companies such as Ruckus Wireless, Aerohive Networks have done just that and reaped significant benefits. Implemented right, such a system can be a key factor in scaling operations, while facing changes that impact growing demand. How do we know this? We have provided the system for their Operations teams. Please pen down your thoughts below or reach out to us at Zyom. We would love to share more.

          p.s. This blog post is dedicated to the memory of Doyle Westley of Aerohive Networks, a respected collaborator

          After the Kick-off – “Early” indicators for 2014

          The Sales kick-off went quite well. Now is the time to take one more look at what 2014 looks like from the vantage point of forecasting before real constraints set in.

          Economic forecasters have long utilized ‘leading’ and other “indicators” as a barometer to predict where the economy will be headed in the future. Inspired, we have pulled together the following ‘early’ indicators that can provide useful ingredients in influencing if not generating a Company’s forecast. While all forecasts are off, early indicators can be used to understand the ‘trajectory’ and a portion of the variance in the forecasts that is otherwise hard to estimate.

          Here are some early indictors and macro-data[i] as you craft your forecast for 2014.

          Early indicators – the Macro

          Weather events & the US – Climate .. or at least the weather took center stage early in January as temperatures plunged in vast swaths of the US disrupting life and business. The near term effects have been significant but not severe. The initial price tag of the big chill is placed at $5Billion (as of early January 2014). Doesn’t appear devastating given nearly 200 Million people were affected. However, long-term effects should be lesser to none.

          The good news – the US economy turned in a fair 2013 (3.2% GDP growth in Q4, 2013 versus 1.9% for the year) and early indicators suggest 3% for 2014. In the near-term the US certainly seems to be back on track, and maybe at the wheel in terms of driving the global recovery.

          Estimated Impact – Of storm – Near-term only (3 weeks to 2 months); US Growth – stable for 9-12 months[ii]

          OECD-world-economy-pickup-picture-small
          From the Telegraph; Photo: AFP
          from:
          http://www.telegraph.co.uk/finance/economics/9079757/OECD-sees-signs-of-world-economy-picking-up.html

          Emerging markets – Short-term growth prospects have been hurt. Turkey made headlines with an egregious interest rate hike in January. However, emerging market countries as far-flung and diverse as Argentina, South Africa, Indonesia and India seem to be facing stiff economic headwinds too. Brazil seems drawn into a stagflation, just months from the big kick-off!

          Estimated Impact – Near to Mid-term (9 to 18 months depending on markets)

          China’s growth phenomenon – China’s slowdown has arrived per data and economists – 7.7% GDP growth in 2013 Year-over-Year, versus 7.8% growth the year before.  While debate is split about future direction of this important market, all data points to a gradual deceleration and not an absence of growth. Structurally, data regarding the supply-side limits are cause for bigger concern (China’s working age population fell by 2.44 Million in 2013 after falling the year before – The Economist Jan 25th 2014).

          Estimated Impact – Near to mid-term slower growth (10 to 12 months); Longer-term growth could be adversely impacted.

          Japan and EU – These key developed markets still seem to be stuck in neutral with dangers of deflation not gone.

          Estimated Impact – Tepid growth. Foggy at best for the next 6-9 months

          Housing starts – A key “leading” indicator of future economic activity is in positive territory in the US, Germany and England (Jan 2014 compared to a year ago).

          Estimated Impact – Could imply some progress for Construction and related businesses (home products, home solar products, other home/consumer products).

          Early indicators – the Micro

          New orders and new customers – Both are good early indicators

          Orders for new products –are valuable early indicator, especially for industries such as the Hi-Tech electronics industry that rely heavily on new products for significant portions of their revenue stream. For example, for the Wireless networking industry, how are the orders coming in for the 11ac products (based on new networking standard) and how are the prices trending.

          Inventory (especially Channel Inventory) & lead-times – are key early indicators. While channel inventories are typically co-managed, tracking this can provide valuable clues.

          Backlog – A very good gauge in the near-term to establish revenue trend. However, this needs to be taken with a pinch or heaps of salt. Why? This depends on how effective are your supply chain fulfillment operations.

          And that’s where the rub is – since some of these indicators depend on a ‘healthy forecast’ so we are back to the ‘chicken and egg’ problem.

          These are a few of the key ingredients to consider as ‘early indicators’ in updating or building your forecast – at least for the mid-term: 0 to 6 months.

          Overcast or Sunny? For those who dare to Forecast

          Even with the best processes and systems the age-old truth holds – All Forecasts are incorrect, especially at the get-go. However companies can disproportionately benefit if they:

          i)                   Include ‘early indicators’ in the forecasting process in a simple way

          ii)                 Make Forecasting (the process) one of the book-ends of the Demand Planning process, which flows seamlessly as a part of the overall Sales & Ops Planning and execution process

          And yes, lets plan to loop back after the proverbial dust has settled on the quarter (or, quarters) to figure out how far off was the Forecasted Demand. And while we are at it.. why not find out why, and how the indicators have changed. As the adage goes..

          “Forecasting is the art of saying what will happen, and then explaining why it didn’t! ”

          -Anonymous

          [i] Several secondary sources used – The Economist from Jan 25th 2014 to Feb 21st; Conference Board at:
          https://www.conference-board.org/data/bcicountry.cfm?cid=1

          [ii] All ‘estimated impact’ notes are wild guesses based on secondary sources research

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