Podcast #58:
Top 11 for 2011
Part 1
Transcript:
By Jim Tompkins, CEO, Tompkins Associates
Hello and Happy New Year! Happy New Decade! This is Jim Tompkins, President and CEO of Tompkins Associates and Tompkins International. I am pleased to be with you for our first podcast of 2011. I am treating the whole 2001-2010 decade as gone, gone and gone. Good riddance! I'm also excited that 2011 is the beginning of a new decade..
In fact I think starting now the next 10 years will be the Golden Age of the supply chain. So for those of us who have invested our entire careers in supply chain, hang on to your hats, we are entering a period of unbelievable growth of supply chain importance and influence. An exciting time to be doing what we are doing.
So, I had the idea of the Top 10 Supply Chain Priorities for the next year and someone said to me why not the Top 11 for 2011? I thought "Awesome!" So in this two-part podcast I will be sharing with you my Top 11 supply chain priorities for 2011.
I also should let you know that my team of industry experts has developed the Top 11 for our nine different industry areas of supply chain expertise. Go to www.tompkinsinc.com and check out the Top 11 for 2011 for the industries:
This podcast, and the one in two weeks, takes a different view. What we are going to do here is not talk about the industry top eleven, but instead hit on the bigger picture of supply chain impacts on business in general. I truly see 2011 as a watershed year for supply chain as we put recession-recovery behind us and once again focus on leveraging the supply chain for increased shareholder value.
In today’s podcast I will cover the first five of my top eleven supply chain priorities. In two weeks I will come back with priorities six through eleven. To give you a heads-up as to where I am going, let me begin by telling you the subjects of my top eleven and then jump into my top five.
My top five begins with the return of business from cost cutting to truly looking at increasing shareholder value. The second priority has to do with the new norm coming out of 2010 and that uncertainty is certain. Then the next 3 priorities deal with key supply chain topics of outsourcing, globalism and mergers & acquisitions.
These five will lay the foundation for the next six priorities to be presented in two weeks. Priority six has to go with the prioritization/benchmarking of your supply chain and your supply chain analytics. Numbers seven, eight and nine discuss your supply chain network, tax effective supply chain management and providing enough flexibility, agility and speed to deal with the pace of change that is hitting us every day.
Finally, I will close out my overall top eleven with a discussion of two topics that we have discussed before that have to go to the next level to be successful in 2011: Supplier Relationship Management and Innovation.
So, enough overview and introduction let me begin by jumping into my top eleven priorities for the supply chain in 2011.
First, making the supply chain not only the enabler, but the driver of increased shareholder value. This topic is surprising to me as I see many v ery successful organizations that do not get it. For companies that have a product, I hate the discussion about should supply chain have a seat at the executive table. Heck, it is my view that the supply chain should own the operations table and the only valued question is where we sit in the board room. At the head of the table or in a key support role as I believe going forward companies that do well at supply chain will be successful companies and companies that do not do well at supply chain will fail.
So this is definitely an exciting time for supply chain. Now you may ask, "What gives me this perspective?" I see three objectives that need to be addressed to achieve the goal of increasing shareholder value. These three objectives are:
- Profitable Growth
- Margin Improvement
- Capital Efficiency
Let me briefly touch here on these three objectives:
First, profitable growth: A key here and one many of us have learned the hard way is that not all growth is profitable. To achieve profitable growth we need to understand both the bottom line and the top line. The bottom line is obviously about profitability and the top line about growth. To achieve the top line, growth, we need to capture new markets and/or new customers. Capturing new markets and/or new customers demands a business strategy that will drive a supply chain strategy to allow the capture of the growth of top line. To achieve bottom line growth requires that we out-perform our competitors. That we have our products available when and where desired and we offer them to our customers in such a way as to grow customer satisfaction and yes even customer delight.
The second objective to increase shareholder value is margin improvement. To improve margins we must reduce the cost of goods and improve speed and productivity. Reducing the costs of goods needs to be done across the entire supply chain to include the supply chain processes of plan-buy-make-move-store-sell-return. In addition to performing these supply chain processes with less cost we also need to improve these processes by being quicker and more efficient. By reducing cost and increasing speed and efficiency, we will achieve the second objective of margin improvement.
The third objective to increase shareholder value is to increase the capital efficiency of the firm. The capital efficiency of a company is measured by how well the firm manages its assets, both fixed and working capital. Fixed assets are those that are owned- plants, equipment, real estate, vehicles, computers, etc. Working capital is the capital required to run a business and it’s primarily driven by the cash-to-cash cycle. The two biggest elements of the cash-to-cash cycle are the inventory required to balance supply chain performance with customer satisfaction; and the balance between Accounts Receivable and Accounts Payable. Capital efficiency is best when synchronizing the supply with the demand inventories and by minimizing accounts receivables while maintaining accounts payable obligations.
So the first supply chain priority for 2011 is making the supply chain not only the enabler, but the driver of increased shareholder value by pursuing profitable growth, margin improvement, and capital efficiency.
The second supply chain priority for 2011 revolves around the new reality that uncertainty is certain. Gone are the days where we could place the understanding of past through the filter of the present to understand the future. In fact, the new paradigm is that no one can overcome uncertainty and so any attempt at trying to do so is futile. Instead of trying to overcome uncertainty what we must do is understand that uncertainty is certain and just learn to deal with it.
Dealing with it should involve some combination of agility, proactively, contingency planning, business analytics, cycle time reductions, risk management, visibility, supplier relationships and development, waste reduction, enhanced sale and operations planning, theory of postponement, upgrades to IT applications and tools, and building sensitivity analysis into the strategic planning process. Not addressing uncertainty now only is naïve, it actually increases the level of uncertainty organizations will have placed upon them. For this reason dealing with uncertainty is the second supply chain priority for 2011.
The third supply chain priority for 2011 has to do with not just outsourcing, but outsourcing for competitive advantage. Outsourcing provides the opportunity to maximize results by allowing your organization to focus its attention, creativity and efforts on your core competencies of your organization. You should outsource non-core processes to organizations that have as a core competency the non-core processes you have decided to outsource.
Once your outsourcing strategy has been determined then the second key to make outsourcing a competitive advantage is to look for the right fit with your outsource provider. Do not just go with the low price, but look to developing long term strategic partnerships with your outsource providers. Often companies’ supply chain outsourcing decisions have been made in a decentralized manner and especially for global organizations; the result is a less than desirable outsourced network.
To maximize the competitive advantage in these circumstances a third key to outsource competitive advantage is a global supply chain outsource network rationalization. An outsourced network rationalization will result in increased performance, increased focus, service and innovation; while reducing costs.
The fourth priority for 2011 is a topic that we have spoke of frequently on this podcast. The topic of Globalization. Of course there is much we could discuss on globalization, but the one aspect of globalization that is different going into 2011 is not Globalization from a low-cost manufacturing perspective and the resulting global supply chain, but much more important for 2011 is the growth aspect of Globalization.
For the last four years the focus of globalization has been a sourcing topic, now organizations want to enter the world’s fastest growing economies, with China at the top of the list. The emerging markets with their young and growing populations, who are having 8-15% annual growth in GDP; and their significant increase in income per person presents the largest growth markets in the world. So we need to not only understand how to export from emerging countries, but to also develop supply chain in these countries to allow our organizations to capture market share in these exploding markets.
The last topic I can fit into this podcast is the fifth supply chain priority for 2011. The topic is Mergers and Acquisitions and has as a foundation the previously mentioned priorities of shareholder value through profitable growth and globalization. In 2011 the number of deals, the number of global deals and the total size of the deals done will get records. The processes that will need to be followed from a supply chain perspective for the maximum benefit to flow from M&A in 2011 are:
- Begin all supply chain integration by beginning with an in-depth understanding of the business strategy of the M&A.
- Formulate on supply chain strategy to be aligned with and enable the business strategy.
- Determine the integrated supply chain organizational structure.
- Specify the short term, mid-term, and long-term supply chain objectives.
- Determine supply chain integration plans and schedules.
- Understand and focus on cultural adaption and change management.
- Manage the integration projects and measure results versus expectations
- Communicate, Communicate, and Communicate
- Benchmark the overall supply chain of the new merged and acquired organization and identify a second wave of supply chain enhancement projects.
Well that is the end of this podcast. I have enjoyed sharing with you the first five supply chain priorities of 2011. I look forward to speaking with you again real soon when I present the next six priorities to give you my top eleven for 2011. Speak to you soon.
Visit Jim's blog, GoGoGo!, at http://gogogosupplychain.tompkinsinc.com/
Follow Jim on Twitter at http://twitter.com/jimtompkins
Additional podcasts are available - see the list here.
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