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).

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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.

 

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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.

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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)

Demand Responsive Operations – A Critical Capability for Uncertain times

Chronic macroeconomic uncertainty (since 2008) has affected global supply chains of large and small product companies in the following ways-

i) Increased demand volatility (huge, unpredictable swings)

ii) Hyper-sensitivity to Operational costs

iii) Inclination to hoard cash/ other liquid assets (even inventory)

Apple’s huge inventory of cash (about $97 Billion, as of  quarter-end 2011), underscores how the traditional wisdom – ‘saving for a rainy day’ – takes on a whole new meaning in uncertain times.

Thriving in Uncertainty – Key elements

Taking stock.. of response

Uncertain times open up a window of opportunity for companies. Smaller companies with strong product offerings that are competitive in price/performance can see sales solidify, even increase. How? Industry research [see note1] and our own work reveal companies are focused on building-out a key capability – End-to-End Responsiveness to Customer/Channel demand.

What does this mean? This is what a typical customer of a responsive company experiences:

“When we change demand, they act on it right away. I hear back from them quickly (within minutes) on what’s the impact – on availability and cost? Its quite accurate ..They present me with options. It’s great! I can make smarter decisions.. wish others did the same”.

This is much easier said than done. For Product companies that do not have a large-company’s purchasing power, to excel at ‘Responsiveness’ some key elements need be in place –

i) End-to-End Supply Chain visibility & execution

ii) Measurable Metrics to get an accurate & speedy picture of Total Supply Chain Response & Cost

Responsive Ops– What it is not? What it can be?

This doesn’t require huge investments in consulting or in expensive systems. What is required, to start off, is recognition at the leadership level that it’s a critical competency which needs to be mastered. Left unaddressed, it can become a huge problem.

Explaining a recent disappointing quarter – Meg Whitman, HP’s CEO, summarized the challenges this way – While HP is “world class” in buying components, “I’m not sure I’d say we were world class in terms of how we think end to end about supply chain.”

While this may seem applicable for large companies under duress, it is not. Far from it, this should make smaller, ambitious companies with innovative products galvanize their best resources to focus on this competency – End-to-End Supply Chain Responsiveness to Channel Demand. Reading closely the quote from Ms. Whitman implies – Purchasing power isn’t everything. End-to-End Supply Chain Responsiveness can be a singular disruptive competency that smaller companies can wield!

Has ‘Faster response’ or ‘End to End Supply Chain’ come up in internal discussions as an “issue”? In what context? Would you like to receive a Case Study on this topic?Learn more? Please let me know or leave a comment.

[note 1] UPS 2011 Changes in the (Supply) Chain Survey