In my last blog, I made the statement, “The traditional thinking of improving speed of transactions between systems was usurped by improving speed of knowledge between people.” Case in point from my own experience:
EMC end of quarter – it was more important to have finance, sales, supply chain and service collaborate in person, to share their knowledge. Orders were prioritized, product was moved, and profit was optimized. The system transactions were certainly needed, but took a back seat to the speed of inter-team collaboration.
Apple new product introduction – departments would restructure. The entire team would have common goals & common compensation plans. This core team held the decision power to meet the announcement date. When you are betting the company on a few SKU’s, the personal collaborative spirit usurped the system transactions.
I think back to these days, especially when I hear my old friends at AMR Research (now Gartner) reference High Tech as an industry to measure for supply chain leadership. There are a lot of reasons this reference makes sense. High Tech has intense product innovation, forcing quick life cycles. We embraced globalization, pushed the envelope of outsourcing, and fundamentally changed the “plan-by-make-deliver” model.
I recently read Supply Chain Insights’ A Focus on Consumer Electronics (Mayer, A., Supply Chain Insights LLC, 4/05/2013). I spoke to Abby Mayer about the industry, and agree with her finding, “the consumer electronics industry has outperformed most other industries in four significant areas: growth, profitability, cycle management, and complexity.” Ah, there’s that word from my prior blog: complexity. Once again, I will state that speed is the inverse function of complexity. High Tech embraces, in fact builds, complexity. It’s a differentiator, when you can control speed.
However, speed in your vertical supply network is not the end game. I found this out when I was recently talking with a supply chain executive, a person I met back in 2008 in Suwon, South Korea. Soon, most high tech supply chains will have speed. It will be the norm to have vertical speed. The new battle ground for supply chain leadership will be the ability to leverage that vertical speed against other supply chain networks. ‘Faster supply chains’ will get the better opportunity for profitability. How? It’s classic for high tech to master a skill, in this case, vertical speed. Then, take that skill and leverage it against the competition. Soon, supply chain networks will compete on speed. The faster ones will place profitability metrics to speed. The South Korean supply chain executive said, “As a brand, I want to position our speed as a means of profitability to our partners. If they can’t answer in hours, especially if they are waiting on slower brands, I will change their profitability targets.” That’s a wake-up call to high tech supply chains. Imagine if your 1 hour response can get 25% better profit margin that your 1 day response.
So, building speed, then leveraging speed, is where High Tech is going. But, if speed of transactions is being usurped by speed of knowledge between people, then what enables speed between people? I posed this question to my South Korean friend, a supply chain CIO from a semiconductor company, as well as to my old Apple network. They came up with two common answers:
- End-to-end visibility – raw material to end consumer
- Tight collaboration – in the form of personal interactions
And, I agree with their responses. These answers are what made my days at Apple and EMC work well. But, all collaboration seems to resonate around a time fence. At EMC, the best personal interactions came over the last two weeks of the quarter. This core team acted as one unit, with common goals, and shared knowledge. At Apple, the same interactions would occur extremely well during the 2 months before new product introduction. Even at Bose, the common bond would happen during those few days called Black Friday.
Which brings me to my largest concern for high tech supply chain leadership: While end-to-end visibility is a gimme in high tech, most companies’ collaboration still isn’t healthy. And, if it’s not fixed, it will have a degrading impact on the future of high tech supply networks. Look at scenario planning as an indicator. Most high tech supply chains aspire to run effective scenario management models. Most don’t do it effectively. Why? Here’s the secret. Effective people to people collaboration requires end–to-end modeling and common goals, and this isn’t happening in high tech.
As a practitioner, I’ll stand up in the high tech circle and say, “hello, my name is C.J. Wehlage, and I am a recovering collaborator.” When I was “collaborating”, I was always making sure my margin was maximized. Let’s not confuse collaborating with fighting for margin. Effective collaboration had not much to do with true end-to-end modeling, as much as it was about margin attainment at the expense of suppliers. My common goals weren’t including Contract Manufacturers and suppliers all the time. Take a second read of the Supply Chain Insight report. Table 3 – while the Consumer Electronic operating margin was fantastic over the 2000-2011 time-frame, the Contract Manufacturers operating margin was low to even negative over the same time frame. I’m not the first to whisper at the AMR Top 25 Supply Chain dinner, “they may be in the Top 10, but really it should be FoxConn/Jabil/Flextronics accepting that award….”
This is my concern, and it’s the game changer for High Tech supply chains. Negative margin in a major node cannot be sustained. Collaboration needs to consider true end-to-end modeling. The complete margin of the network needs to be the metric that drives success. Then, cool terms like ‘total cost to serve’ will mature. But don’t look to mathematical models to bring about this collaborative change. I expect it will be human judgment & ingenuity.
We still have a global, complex network that crosses multiple nodes, not all under the same controls, not all driven by the same metrics, and not well trained to share benefits; Couple all this with economic reconfiguration (see China growth), cultures, language and levels of sophistication.
That’s why it’s so critical to begin with sharing knowledge, end-to-end, with the network. Innovation breeds from this sharing. I believe this innovation will create the step function in collaboration.
I’ll leave this blog with a shout out to an old AMR Research friend, David Aquino, now a SVP Supply Chain in Irvine, CA. Dave and his colleague Lucie Draper wrote a great report on supply chain talent while at AMR. The report described that the lack of talent is a great risk to seeing this step function in collaboration. From Figure 6 of the report, the section for Highest Level of Skills Sought & Lowest Skills Available is: Customer Management, Strategy and Change Management, Technology Enablement.
Within the report, the comment was made that leaders would like to see candidates that are better able to “connect the dots.” That sounds a lot like true end-to-end innovation – the kind of innovation that is created out of human ingenuity. Something that gives me hopes that this will occur. From my two years at AMR Research, I recognized that the Top 25 supply chains didn’t always have the best mathematical systems, but did have a desire for ingenuity.