Supply Chain, A Competitive Advantage

This week Business Week published an article about Apple's competitive advantage (http://www.businessweek.com/magazine/apples-supplychain-secret-hoard-lasers-11032011.html).  Frankly, this is not the first article, nor most insightful article, about this topic but it inspired me to this more broadly about supply chain...

(Petty comment first:  I frankly dislike how everything Apple does now is treated like a new revelation...fire from the gods, if you will.  Enough said.)

About seven years ago we started laying out a plan for how supply chain could become one of our competitive advantages as we tried to turn around Sony Ericsson.  A few elements (there were many more) of our plan were:

1. establishing a transparent demand-creation process with the regions
2. providing our factories and suppliers with clear visibility to changes in demand in exchange for record-short lead-times
3. co-location of component manufacturing for custom components so we could do JIT customization of our products
4. direct shipment of product from factory to customers

Our work paid off and we were able to create a competitive advantage that helped bring back Sony Ericsson from the brink of bankruptcy.  However, this supply chain was built for speed and agility; what Apple has done is build a supply chain for speed and technology.

Seven years ago, Nokia was the king of the supply chain.  Their presence was ubiquitous; every supplier either did business with Nokia or wanted to do business with Nokia.  Nokia was a benevolent king using their power judiciously to better the lives of their subjects (the suppliers).  Later, when Sony Ericsson became also influential in the supply chain, they too were a benevolent Baron (king is too generous).  Some of the underlying philosophies behind how Nokia and Sony Ericsson managed their suppliers were:

1. A supplier controlled their own destiny.  If they provided quality, continuity of supply and competitive pricing then they would always have access to new business.
2. Partners, not just suppliers.  Nokia actively worked with their suppliers to develop technologies, improve their factories, establish better processes.  Suppliers were developed into partners.
3. Always "do the right thing."   "Doing the right thing" was a philosophy that helped guide decisions whether it was about making sure the suppliers were environmentally responsible or making sure that suppliers brought in business from competitors so they wouldn't be too dependent on business from Sony Ericsson, etc.

There is a new philosophy that is taking over supply chain and it's not based on benevolence.  If Nokia was Henry IV, then we are now under the rule of Henry VIII.  I see a mindset of hoarding, short-sightedness and callousness starting to heavily influence.

There are some who believe that everything they touch is theirs.  Reminds me of Stingy from Lazytown (http://youtu.be/AX5sIRop-M0).  I could change the words to be "that flash memory is mine, that CNC machine is mine, that QX display is mine"...you get the point.  The truth is that every company has a right to hoard those technologies that they develop but many times that thinking extends to technology that the suppliers developed and it keeps those suppliers from giving other companies access to technology.  It's  bad business for everyone except the company at the top of the haystack.

There is also a general lack of accountability for the supply chain impact on the environment.  Let's be honest, would anyone buy a smartphone if they knew that somewhere in China the production of that device was giving a little child cancer?  I hope not.  China is going through a similar transformation as the US did back in the first 75 years of the 20th Century where rivers and lakes are being polluted, toxic material is being dumped (here we call them super fund sites) and people are suffering as a result of that carelessness.  The difference between what we did and what's happening to China is that we learned our lesson and should be carrying those lessons with us as we manage our suppliers but that is not always the case; many turn a blind eye.

When I was a kid everyone called me an "old soul", now they just call me "old" (ok, 38 is not very old) but the reason was because when I looked at situations, I did so with a perspective that spanned multiple generations; I understand that there was a yesterday and there will be thousands of "tomorrows" and the decisions we often make today or made yesterday can make life very difficult for those who we've entrusted with "tomorrow."

My main concern is that there will be a new generation of supply chain practitioners who will grow up idolizing companies who are short-sighted in their approach.  Hell, who knows if Nokia, through this transition, turns their back on their own philosophies.

A perfect world would be one that combines hunger for technology demonstrated by Apple and the benevolence of Nokia past. This is what I plan to do in my next role...

Who we benchmark...

 This week, I have been thinking a lot about benchmarking, innovation, leaders and followers in the corporate world today.

Innovative Ideas

Recently a friend of mine from my former place of employment, SonyEricsson, received a President´s Award for an idea that ended up contributing $Millions of Revenue (and profit) to the company due to it´s ability to prepare the supply chain for unforecasted increases in demand. Now, I was in my friend´s office when he started thinking about this idea and we bounced back and forth how it could be put to practice. My first reaction was to insist that he needed much more "science" behind his idea but in the end he implemented it in a very basic, simple way and booyah! the results were overwhelming. This got me thinking...I have all these amazing (or so I think) ideas running around in my head all the time! These ideas are all over the place from ways to reduce water in the bathroom (I happen to believe that water will be more of a problem some day than oil) to how Dell can fight back against HP! However, what is very discouraging sometimes is that I see time and time again that for whatever reason (I think mainly due to the "quarter mentality" that seems to permeate corporations today) what companies are looking for are ideas that are quick, simple, easily executed and provide immediate results. Corporations don´t really want innovative ideas that truly "fix" problems in the company if those ideas don´t show immediate returns. The truth is that my friend´s idea would have been an unmitigated disaster in a different situation where the market was requiring less products than they were planning.

Benchmarking

Think just a few years ago. What are some of the companies that were prime candidates for benchmarking? Meaning, which companies were companies that everybody wanted to benchmark? Here are a few. Dell, Samsung, Motorola, Sony, Lucent. See a trend? All of these companies are right now experiencing some kind major slump, or are coming under lots of criticism or in some cases are companies in crisis. I find amazing that when a company comes out with great results people are so ready to follow anything that they do. Ever read about how some of the creative hunters used to hunt for buffalo? They would scare the hell out of a herd of buffalo and get them to stampede right off the end of a cliff! Well, our corporations today have the same tendency.

A year ago, Motorola could do absolutely no wrong. They had the slimmest phone on the market which was flying off the shelves. Everybody wanted a RAZR! The margins were incredible, sales were high and many articles came out lauding Motorola´s creativity for allowing this skunk project to become a viable product. My first thought was..."wow, it´s too bad that it was a skunk project". Why? Am I against skunk projects? No, but the truth is that companies that are successful for a long period of time don´t stumble on success but rather find a way to ingrain it in their culture. When you stripped away the gloss, the praise, the adulation, it was clear that Moto had stumbled on two wow products in 20 years...the StarTAC and the skinny StarTAC (RAZR). Now, a year later, everybody is slamming Moto for not having a creative portfolio. How things change in just a year.

How about Dell. I have seen their operations and I can tell you there is nothing out there like it. They are the Devin Hester of supply chain (fast, agile, freaks of nature). However, why is everyone slamming Dell? They missed on their results a few times and have lost market share to HP. Look at the Dell vs. HP stock. How in the world did HP re-invent themselves as a sexy stock to own? How did they convince the world that they were cool and Dell were boring? Well, look at the Dell product lineup. BORING! I think Dell fell so in love with their supply chain genius, their absolute operational leadership that they forgot that humans are very tactile and visual and nobody can visualize a cool supply chain but they can look at the dell lineup online and yawn. The truth is that HPs computers are not any cooler looking but hey, you can physically see them at Best Buy, Circuit City, etc. If you have two really, really boring products then the one that is only visible on the web will lose out to the ones that people are physically touching and seeing. What is the answer for Dell? Stop looking into the water at your supply chain reflection and look around once again to your customers.

On to Sony. Wow, what a mess. I can´t say anymore because if I do, I might get in trouble with some of my old colleagues.

Leaders and Followers

There is a dangerous trend to copy verbatim the blueprint of companies who deliver great financial results. I am appalled at the seeming lack of original thinking in companies. Why does beating the forecasts of analysts around the world suddenly become the measure of a company´s character, genius and leadership? I read some of the in-depth analysis from some of the most credible analyst in Wall Street today about companies that I personally know well and they are no more credible than me sitting here and writing an article about the inner workings of Tony Dungy´s genius mind. I see the results of Tony Dungy´s genius (I fully credit the Bucs championship to Tony also) and it´s very obvious that he is a master at what he does but there is no way I could sit here and write a 10 Step Program for creating a Tony Dungy team. Ever think that it might be possible that an analyst wakes up from his 3 hour power sleep and groggily, in a bad mood realizes that Ericsson just missed their profit results by a few $Million and that is going to cost his company $Millions in "value" on the stock and so he goes into the office and gives a resounding "sell" which drives the company´s stock down which results in his company cashing in on all the margin calls and short positions out there? What happened to the stone-cold, hard facts that Ericsson´s two main competitors, Nokia/Siemens and Alcatel/Lucent are mired in messy joint ventures and will remain that way for the next year or so which will most likely mean that Ericsson stands to derive lots of benefit from those messy situations? I am not pushing Ericsson stock here but just trying to point out that our stock markets have made us all fickle followers of undeserved leaders.

I challenge anyone to find anything about the success of Apple, SonyEricsson, Nokia, Dell, HP, etc. that could not be replicated with some hard work, dedication, open-minded creativity, passion and avoidance of the seven deadly sins through these simple life lessons that I propose:
1. Lust--don´t lust after your competitors. Respect them, emulate their strengths but when you lust after them you will just buy anything they do and thus the stampede...
2. Gluttony--it´s hard to be successful when your executives are so focused on their next Bentley that they forget about the next innovation.
3. Greed--don´t let the piles of money today guide your decision making for tomorrow. Don´t aim for just financial gain but keep true to what defines the character of your company.
4. Laziness--it´s so much easier to eschew the long-term strategy for the quick fix especially when the quick fix will make you a temporary hero and thus set the stage for your promotion.
5. Anger--anger has no place in the workplace. Many leaders mistaken strength of character for anger. Just because you are yelling at your employees out of anger does not mean they respect you.
6. Envy--being jealous of another company only makes you blind to the gold that exists within your own company. I don´t know if it´s an urban legend but I heard a story about one of the De Beers brothers who sold his portion of the farm in order to go prospecting for gold in California. He died broke and he left behind, well, De Beers diamond mines!
7. Pride--the deadliest of these because once pride has permeated any level of an organization, especially at the top, it spreads like a cancer and makes people blind to changing trends, new ideas, each other, the competitors, etc. I am so impressed when I hear Micheal Clarke Duncan speak because he has the physical attributes of a Titan but the humility (or so it seems) of Moses.

Oh, one last little rule to live by...pretty things sell.

That´s it for now. I doubt anyone is reading this but I enjoyed talking to myself!