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).
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.
The most serious Risk that Companies with extended supply chains face is – the ShortageRisk. 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.
– 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