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October 26, 2013

Risk Management in Logistics services

The current market situation being extremely demanding, the existing operating environment of the supply chain has become vulnerable in terms of its capacity of "risk resistance" and also has challenged its own ability to avoid such risks.


"Logistics" as we understand is that aspect of "supply chain" which translates the investments in business into tangible value-realizing-ones by playing the role of a connecting bridge between all the individual performing elements in the chain.  It is that "agent" which by its own dynamic nature makes the supply chain perform its desired action in the most appropriate way and establishes the framework of operations visibility for business.

The current market situation being extremely demanding with a very high probability of occurrence of business uncertainties (in terms of price increases, capacity shortages etc.), the existing operating environment of the supply chain has become vulnerable in terms of its capacity of "risk resistance" and also has challenged its own ability to avoid such risks.

The primary reason for these risk parameters though linked to variability of demand; it however also assumes some relevance in terms of overall resilience of the entire process in terms of management of "service categories" that exists in the chain. For example, if during fixation of SLAs or setting of KPIs for performance, the system environmental factors - capacity issues, service continuity, supplier portfolio are not identified, the initial planning process and the delivery model assumptions continues to remain at risk which threatens the overall logistics.

The "Risk Management" principle assumes primary importance in this direction that helps provide a visibility towards the direction of these risks, the point from which they approach and also makes way to build an attitude internally to design a shock absorbing system to mitigate them. 

An analysis of the whole ecosystem that accounts for the logistics systems to become prone to these risks can broadly be classified into two categories -

  1. the internal key factors which include : Sales price erosions, product life cycle management (phase in / out, lot size change etc.), Cross functional business strategies (manufacturing model, distribution model, Inbound / outbound channels, purchasing and sourcing strategy etc.), environmental focus    and
  2. the external market factors that comprises : market consolidation (merger and acquisitions), capacity imbalances or limited transportation capacity, rising energy costs, market volatility (trade imbalances, seasonal pricing in pockets), technology investment costs and various labor and compliance laws.

Depending on the nature and applicability, by and large almost all enterprises go through these with some element of vulnerability that makes their supply chains prone to the risk of failures.

A properly planned "Risk Plan" during the Supply planning stage OR establishing a generic risk aversion model in the basic framework of the process with clear set of governing principles along with the possible roadmap of mitigation helps the process to become resilient by itself and builds in itself the capacity of necessary adjustments for resisting the risk events from its occurrence. Some of these generalized governing principles can be as follows:

Indranath_Risk.png
Our life as we all know is not a bed of roses and likewise we can't expect our business to be a cakewalk. However it is this knowledge and the preparedness to face the thorns, which makes us able and capable to walk the path laid down before us. We need to inculcate the same philosophy in our businesses too to make them capable of cutting the thorns when they come in the path.

October 18, 2013

7 Smart Lessons for Sourcing & Procurement Professionals

7 smart lessons I've learned from my mentors through the years. Particularly relevant in my work area - Sourcing and Procurement.

  1. Relationship means reciprocity: There are no free lunches. If you want something, you should be ready to offer something in return.  In dealing with suppliers, sometimes this basic logic is ignored by sourcing executives causing a bad supplier relationship in turn leading to a serious risk to the inbound supply chain.  The willingness to "give in return" - even when it is difficult - is essential for the relationship to grow and flourish. 
  2. The execution of an idea is more important than the idea itself: The most ingenious sourcing projects, no matter how deeply analyzed or thoroughly researched, can fail during execution.  A simple idea together with an execution plan, right efforts and attention to details will always give better results than many extraordinary ideas coming out from intense brain storming sessions.
  3. Don't let anyone intimidate you: Stakeholder management is one of the most important parts of sourcing cycle. During the process if you let anyone (e.g.  end-user, engineering, quality, finance or your own colleague) bully you, it makes a progressive effect on your mind.  You have to be assertive and stay on your ground in order to keep your self-esteem at par. Some people may have a different opinion on this point as sometimes it is advisable to stay low in the short term to gain more in the long term but I think even a single instance should not be accepted.
  4. What doesn't kill us makes us stronger: Often we get much too stressed thinking about missing a saving target and wonder how will we survive if a sourcing project is delayed. I believe we should give ourselves a little more credit for being able to overcome difficult situations.  We've all gone through tough phases in business and have come out without losing a limb.  I've learned that 'Staying Positive' is the best mantra to deal with such situations. 
  5. Learn from Suppliers: Suppliers are the subject matter experts in their field of business. Sometimes we make the mistake of ignoring someone because we assume that we already know all about the subject.  Just listening to suppliers' words and understanding their product or services gives small nuggets of knowledge which are extremely useful during the sourcing process.  In my experience, I've rarely come across a supplier who couldn't teach me something new. 
  6. Present your story effectively: It may sound too basic to be a 'smart lesson' but after suffering through innumerable painfully boring PowerPoint sessions, I thought it should be included.  Communication through PowerPoint slides has become an integral part of strategic sourcing and category management roles and effective communication requires both good content and clear presentation.  I've learned three basic things to make an effective presentation.
    • Be 100% clear about the objective of the presentation. Is it meant to inform, persuade, sell or entertain?
    • Remove the clutter of text and graphics and keep a simple and clear story line
    • Be consistent throughout the slide deck and same type of repeated presentations (e.g.  supplier recommendations) should follow a standard template
  7. Maintain a work-life balance: Last but not the least, maintain a fine balance between "work" (career and ambition) on the one hand and "lifestyle" (Health, pleasure, leisure and family) on the other.  It may not directly help to become a successful sourcing professional but it will definitely make you a happier person.

Well, let me stop at 7 because it sounds like a smart number :-). Hope you find them valuable. Please add more in the comments.

October 15, 2013

"Innovative disruptions in Sourcing and Procurement" or so it seems!

There are examples from the world of sourcing and procurement that I can share from my experiences and a few of them come close to being disruptive, within the given scenarios, if not downright disruptive.


We have heard of Clayton Christensen's Innovative Disruption, which refers to an innovation or an innovative product that can disrupt the current market for an existing product. He explains this in The Innovator's Dilemma. Some classic examples are the Hydraulic Excavators against the Cable Operated Excavators or the emerging Cloud Computing that can disrupt or displace the need for local physical media to store digital data in the form of USB Flash Drives. I was thinking, maybe there are examples from the world of sourcing and procurement from my experiences (mostly Automotive) and projects that I can share and a few of them come close to being disruptive, within the given scenarios, if not downright disruptive. And of course, these examples can be debated to from a certain point of view, which is what I welcome.

The first example that comes to my mind is from Automotive! At one point in time, more than a decade ago, I was buying Wiring Harnesses ("extremely engineered products" that undergo a detailed product development and evaluation process that also make it one of the most sophisticated, complex and costly components to source - to put in perspective, there are 300 circuits and a bunch of 1000 connector switches in a simple B class notchback car! The development time can be close to 30 months) The supply chain is very complex due to the nature of these components - there are electrical and electronic components, terminals, switches, sensors, plastics, junction boxes . . .  you name it.

The wires used in these harnesses traditionally were not lead free and halogen free. When PVC burns, it releases a substance called dioxin that harms the Ozone layer. Making halogen free harnesses involves investment in processes and machinery, that makes the product uncompetitive. Suppliers were not willing as not all OEMs would invest for this. So, what we did was to involve the engineering team to drive halogen free harness development for a global model so that we could start discussions with suppliers. As expected, there was a lot of resistance to it (we should call it "tremendous tremendous initial resistance"). We came up with a detailed strategy - one included asking suppliers to check which other automotive OEMs would be interested in switching over to halogen free wires, and the second involved checking if halogen free process itself can be aggregated at a global level. What was adopted finally over a sourcing spread across 3 years included components from both these strategies that drove down costs significantly. As I am speaking to you now, most OEMs in India have started to use halogen free wires. This change has been witnessed only in the last decade and has been central to wiring harness supply chain over these years. 0% to 80% change in this automotive domain in India. Can we call this disruptive?

One more example I have is the Tata Nano itself. Is it a disruptive technology? Obviously no. But it has elements of disruptive ideas that have challenged existing wisdom. If the theme of making a car for two thousand dollars is not disruptive, then what is? For instance, the engine is at the rear, the luggage compartment is in the front, it has a central speedo meter for both RHD and LHD versions and to top it all, the starter that was proposed was a motorcycle one! All OEMs develop parts specific to a car model that increases the costs due to restrictions on cross sharing of IPs. But the Nano uses sourcing concepts that are open source models for a significantly large number of components. Also sourcing and engineering teams have used concurrent engineering and value engineering concepts to drive down costs further. However, how successful has the Nano been is something that is debatable. The underlying concepts are not.

One last disruptive concept closely related to supply chain or procurement function is the QR code. Not many people are aware that the QR code was developed by one of Toyota's Keiretsu (do you recall my blog on Keiretsu suppliers) companies called Denso, which is one of the most innovative organizations to date. QR codes was meant for vehicle and components tracking in warehouse and car yards. Its use now is very significant across the supply chain including Inventory tracking, shipping and logistics. A certain wildlife park in Florida went on to have QR codes installed on the hiking paths to enable hikers get information on local fauna! To put it in perspective, a QR code holds 100 times the information a bar code can hold and the allowance of error margin is also much higher. But why is it that even though the company that holds the patent to it, has granted free license on it, there is no significantly enduring increase in market share for QR codes. The answer is in the value network it can create - most significantly, not many users find it hassle free considering the fact that one would need a QR App to read it and a strong data connection to go along for loading the webpage. These are some key reasons why the QR code hasn't really replaced the bar code even though the QR code is impressively disruptive in a few Automotive OEM procurement domains.

There are a few more examples I think are disruptive or missed being disruptive,  that I have not mentioned here. I welcome your views - would be happy to respond and keep the conversation going. Thank you.

October 11, 2013

Mutating to transform - natural evolution for the IT and ES industry?

The BPaaS model is fast becoming a cornerstone of customer enquiries and addresses an inflection point in the BPO industry. While the IT+BPO story was earlier about automation, it's now about offering the entire service - tech, people and process as a service.


Evolution is natural and we have seen this in the BPO industry as well - way back in the good old 90's, BPO started out with the basic premise of bringing in "labour arbitrage" to industry using the global delivery model to deliver processes in a lift-shift-consolidate and run model. While cost is still a driving force in the industry, other requirements and demands from customers are fast gaining priority. Till a few years ago, most interactions with clients would involve conversations around what value is bought in terms of automating technologies to enhance and transform the business process. The BPO industry consequently evolved to develop strong capabilities around process integration, productivity improvements and transformation all built around automating technologies.

 

ShyamRao_Mutating.png

Over the last few months a new trend is emerging - clients have been asking for BPO providers to take over not only the people but also the technology backbone to offer the process as a complete business process solution. This BPaaS model is fast becoming a cornerstone of customer enquiries and addresses an inflection point in the BPO industry. While the IT+BPO story was earlier about automation, it's now about offering the entire service - tech, people and process as a service. Hence while BPO companies strive to provide platform services, the fine line between IT and BPO is blurring and we see a convergence of the two industries. Will this be the next stage of evolution in the industry where there is no IT or ITES industry but only a BPM industry focusing in integrated transformation? Or will this "integrated transformation model" be a strange mutant which might not deliver its promise or will it be the natural evolution to ensure survival of the fittest?

October 10, 2013

Spotting Transformers - A HR Practitioner's cheat sheet

While it is clear that transformational thinking is at the root of innovation and success, it is not a skill that is commonly available. HR has to be smart to identify and nurture these 'outliers' in the system.


Businessdictionary.com defines Transformation in an organizational context as, "a process of profound and radical change that orients an organization in a new direction and takes it to an entirely different level of effectiveness. Unlike 'turnaround' (which implies incremental progress on the same plane) transformation implies a basic change of character and little or no resemblance with the past configuration or structure."

So, Transformation has to be radical. It has to be new. Its results have to be exponential. And all this should NOT resemble the past. So we are talking about a whole new future. Here is the dilemma. Human beings are not trained to think back from the future. We are designed to think forward from the past. We are trained to project a future based on what we know about the past. And our brain is an instrument that is designed to help us survive. So it almost always thinks of things that are risk free and comfortable. So when people are asked to transform business, they start to analyze almost automatically and come with imitations of what worked in the past.

So transformation calls for a whole new paradigm of thinking that is not common. This probably explains why there are so few successful business transformations today. Take any visionary - whether it is Kennedy imploring scientists to put people on the Moon, or Steve Jobs inventing a market for digital music, or Gandhi conceiving a non-violent struggle, or Google suggesting unlimited storage on your Inbox. They all could not have relied solely on the past for evaluating their idea's feasibility or potential success.

While it is clear that transformational thinking is at the root of innovation and success, it is not a skill that is commonly available. HR has to be smart to identify and nurture these 'outliers' in the system. How can HR play a role in hiring and nurturing Transformational Thinkers? And how do you know a transformational thinker from a normal one when you talk to them?

Here are few simple and practical pointers that I wanted to share from personal experience.

  • Transformation thinkers have more future orientation in their conversations. They have something to look forward to all the time. There is a certain positive restlessness  around them. You will notice this in the first five minutes of your conversation with them. You will notice this because these types of conversations are usually rare.
  • They may not be positive thinkers, but are possibility thinkers; They tell you what is possible even in the most difficult of situations. A possibility is grounded in reality and not wishful thinking. They have a great relation with data and reality. They look for missing opportunities in data and in the real world.
  • They often use the language of a sportsman or a scientist. They are either 'playing' or 'experimenting' most of the time. In both cases, they have a great relationship with failures. They do not spend too much in the fail modes. They rebound easily. They often can go beyond praise or criticism and focus on what is important.
  • They are non-conformists. They are willing to bend the rules within reasonable limits to try out something new. They most often have an unusual hobby.
  • They are adventurous. They more often are ready to ask for an apology than for permissions.
  • They are not superficial. They go beyond the first acceptable answer they get. They are creators. They construct an idea, then give it attributes and then look for fulfilling them.
  • They are great inspirers. They can often make another person see something new that he/she has not seen otherwise. They themselves get easily inspired. They are collaborators. They seek ideas everywhere and get easily inspired themselves. They multiply ideas rather than divide them. They keep looking for ideas in the most unusual places. They see patterns where others don't.

I am sure you would have come across these kinds of people, and when you do, you know you have a winner on your hands. Retain them and give them your transformational work. Your chances of success will be higher.

October 7, 2013

Chicken or Egg dilemma - Shared Services or Outsourcing? Which should be done first?

Which approach is the best? Which should be done first? If you ask me, I would give a Consultant's answer, "It depends".


This, I believe, is a perennial question for organizations to answer when they embark on the journey of consolidating functions. Each approach has its own merits and demerits when pitted against each other.

Outsourcing brings with it the following benefits among others

  • Access to the right skills and experience
  • Access to a plethora a of best practices, as a result of serving multiple clients in multiple industries
  • Ability to transition, manage transition and set shop quickly
  • Ability to add services/processes delivered seamlessly
  • Quick payback in terms of reduced cost of operations (especially when Outsourcing is combined with Offshoring)

Shared Services approach has its own merits among others

  • Monitor and control delivery
  • Ability to maintain quality of service delivery
  • Proximity to business; quick response to business
  • Skills and processes are unique to the organization
  • Incremental investments

However, which approach is the best? Which should be done first? If you ask me, I would give a Consultant's answer, "It depends". The best approach often depends on the maturity of the organization, maturity in functions and processes; processes and functions amenable to consolidation, among others.

And for most organizations, the best way forward is a combination of both shared services and outsourcing, culminating in global business services, where services and processes are managed and delivered globally, irrespective of from where or who delivers those services.

October 4, 2013

Global process transformation: Riding the crest of the opportunity wave

With scale comes complexity; that's admittedly the case with processes at most organizations. This point of view looks under the bonnet of global process transformation and examines the levers that help dissolve functional silos in organizations to a great extent.


There is general consensus about the need for enterprises to operate as integrated worldwide entities in order to be more effective. Yet there are many roadblocks in the way. For one, there is a short-sighted approach to running functions in organizations. One function "sees" another through a misty glass window. Help is here. It takes the form of a 4-step approach to overcoming hurdles, driving process transformation globally, as well as benefiting from it overall. 

  1. Setting up global process owner models
    The logical first step to overcoming functional silos is doing an organizational effectiveness study. Identifying global process owners (GPOs) who can bring all related processes on the same page is critically important. GPOs will be responsible for process changes, as well as play an important role in validating any process change. In many cases, GPOs must be supported by regional centers of excellence carefully positioned in geographic hotspots. 
  2. Aligning process metrics to help meet business goals
    Processes behave the way they are measured. So there is need for a performance management framework to measure metrics across functions. This will help break down the compartmentalized mindset. The overriding idea is to consider a business in its entirety rather than as a sum of its functions by applying broad metrics (e.g., supply chain costs, efficiency, service levels) instead of functional metrics.
  3. Ensuring  Technology intervention
    Automating processes will promote the cause of collaborative and integrated working. By tearing down silos, technology will enable more informed and faster decision-making. Better visibility and real-time dashboards are among the pressing needs of enterprises. This is where automated workflows and cloud-based services help by improving the ability of different functions to collaborate across locations, units and processes. It is essential that organizations continuously visit their structures and open up to emerging technologies and best practices. 
  4. Keeping tab on change management effectiveness
    Resistance would naturally build up if something is seen as "forced". Hence change management must ensure the people affected by it agree with and understand the need for change. By failing to engage the hundreds of millions of stakeholders to some degree, organizations risk value leakage and, worse still, service disruption in times of change. 

With scale comes complexity; that's admittedly the case with processes at most organizations. This point of view looks under the bonnet of global process transformation and examines the levers that help dissolve functional silos in organizations to a great extent. For more insights, read the complete point of view.

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