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Transitions and Turbulence – how to ride it out?

February 19, 2017 Leave a comment

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.

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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)

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

February 28, 2014 Leave a comment

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]

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

The Biggest Risk to Supply Chains (circa 2012) and How Not to get Blindsided

May 24, 2012 4 comments

The most serious Risk that Companies with extended supply chains face is – the Shortage Risk. In the wake of the Japanese earthquake and tsunami[i], the floods in Thailand and a fire that took significant capacity of a critical automotive industry resin offline[ii] – ‘major supply shocks’ have taken center stage. But these are only a small subset of the Shortage risks that Companies and their Supply Chains face.

Often, the more mundane, ‘garden variety’ shortages that Companies face on a daily basis, can pack a vicious punch – making a serious dent in a company’s competitiveness, if not pushing it off the cliff!

Let’s understand why Shortages are the biggest risk now and examine potential warning signs that shortages maybe just around the corner.

The Destructive Impact of Shortages: For the want of a nail..

Shortages impact all companies downstream of the manufacturer facing shortages – to varying degrees. Sometimes, shortages can cut across industries.

For example, if Amazon buys up significant capacity of TFT glass (a specialized LCD used in different products) for its next new Kindle launch, that can cause shortages in unrelated industries – such as at video-game makers or electronic-toy makers. Even, the most agile Operations executives can get blindsided in such cases.

The impact of shortages can be severe. Dynamic young companies trying to ship products, stand to lose a lot. But even larger companies are not immune (Smartphone Biz Hurt by Own Success as Chip Supply Shrinks [iii]). Beyond the obvious Revenue impact, shortages can:Scaling Mount Moving Target

–          turn away new customers (revenue hit),

–          put-off existing customers (satisfaction erodes, loyalty and customer lifecycle value diminishes),

–          cause unintended consequences (long lead-time for large companies downstream or an entire industry[iv])

–          worse (perception of poor management controls, even if incorrect, adverse competitive impact[v])

Any one of these is bad enough. Their compounding effect can be devastating.

Avoid getting Blindsided – Warning Signs

At a time of such a tepid recovery, leadership across companies of all sizes should take note of this threat and ask – What are the warning signs that we are exposed? Here are a few critical ones we have found helpful:

1) Frequent over-forecasting by Channel partners and Field Sales – Manufacturing Operations team frequently asked to jump through hoops to increase shipment quantities at short notice, often to find later that forecasts were lowered.

2) Dependence on very few suppliers – OEMs totally dependent on few Contract Manufacturers (in the Hi-tech electronics industry) or Tier1 suppliers (in the Auto industry) who are also major suppliers for other competitors. BOMs with a high percentage of single-sourced items should also throw up red flags.

3) Visibility limited to key suppliers in the first tier of supply only– For an OEM this means having the ability to manage and monitor the performance of direct suppliers only, in the best case (CM/ODMs or Tier1 Suppliers [vii]), and no visibility beyond that[vi].

4) Frequent Allocations sometimes even on ‘run rate’ products – For products that start approaching stable sales patterns, alarms should go off if shortages occur, before these products go on hard ‘allocation’.

5) Quarterly Business Reviews (QBR) with suppliers showing ‘strain’ or going ‘too smoothly’– If QBRs with Supply Chain partners start showing strains due to unplanned costs,etc.– that’s an early warning. Dangers may also be lurking, if no disagreements arise.

6) Total time to respond to demand changes is unknown or too long – When it takes too long to answer – “How long will it take to ship a 10% upside?” or the range is too wide (“a few hours to a few days”) – that’s a red flag.

There are exceptions to the above. However, time and again, across different companies and industries we have found the above provide a good check-list to harden Supply Chain processes and systems against shortages.

Have you been part of a recent ‘shortage event? Did you see any other warning signs? Other Supply Chain risks that are bigger?


[i]  Japan and the global supply chain: Broken links; The Economist; March 31st, 2011

http://www.economist.com/node/18486015/print%205/8/2011

[ii] German Chemical Plant Fire Threatens Auto Backlog; April 23, 2012
via NPR, http://n.pr/Jjco6q

[iii] Smartphone Biz Hurt by Own Success as Chip Supply Shrinks; King, Satariano and Culpan – May 14, 2012
http://www.bloomberg.com/news/2012-05-15/smartphone-biz-hurt-by-own-success-as-chip-supply-shrinks.html?cmpid=yhoo

[iv] Automakers Avoid Crisis After Scramble For Resin;  Fri, 04/27/2012, AP
http://bit.ly/auto-resin-supply-shortage-2

[v] Report: UMC benefits from TSMC 28-nm supply shortage;  May 17, 2012
http://www.eetimes.com/electronics-news/4373239/UMC-benefits-from-TSMC-28-nm-shortages

[vi] Don’t let your Supply Chain Control Your Business; Choi & Linton; HBR, Dec. 2011
http://hbr.org/2011/12/dont-let-your-supply-chain-control-your-business/ar/1

[vii] Case Study – Accelerating Demand Responsiveness while facing Uncertainty and Growth
http://www.zyom.com/Education/CaseStudyindex.php

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