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 timeBusiness 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

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)

2013 Takeaways, Forecasting the Leaps in 2014

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

Takeaways – 2 short stories

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

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

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

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

Collaboration-Tasked

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

Leaping forward in 2014.. and beyond

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

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

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

Wishing you a Leap forward in 2014!!

Collaboration – One small step.. A big operating advantage

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

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

Poor responsiveness of far-flung supply-chains

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

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

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

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

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

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


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

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

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

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

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

http://youtu.be/GvSTb2nmoq0

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

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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