Hello, my name is Jim Tompkins. I'm the CEO of Tompkins Associates and Tompkins International.
Our first six-part series on this global supply chain podcast brought us discussions on globalization, having a great global supply chain, separating global facts from fiction, identifying the correct supply chain opportunities, supply chain assessment and supply chain partnerships.
Today we are kicking off a new six-part series on this global supply chain podcast. The last five parts of this new six-part series will focus in on the five steps of the supply chain: buy, make, move, store, and sell.
On each of these five steps, I will be joined by an expert on each stage to help me probe these topics from a global perspective. Before we drill down into the buy, make, move, store, and sell processes, we would be like the ostrich who had its head in the sand if we did not stop and dig into the serious global economic crisis that is affecting virtually every business in every nation today.
The economic uncertainties, coupled with the declining consumer confidence, are creating the most challenging times in my career and very difficult issues in board rooms, conference rooms, on the shop floor and yes, even on the street corner. No one is insulated from this economic mess.
To help me explore what companies need to do to both survive and prosper in this most challenging climate, I have asked Gene Tyndall, the Executive Vice-President and Leader of our Global Supply Chain Services Practice, to join me.
Gene has over 25 years experience as a global executive, consulting leader, and advisor to over 100 multi-national corporations, and he has considerable experience helping organizations through difficult times. I am very pleased that Gene has joined Tompkins Associates and Tompkins International this year and is leading our global business growth and client services.
Jim:
Gene, welcome, and let me begin by asking the question straight out that has to be on the minds of our listeners: with the serious global economic downturn, how is this affecting companies and their supply chains?
Gene:
Jim, as we know, this crisis is affecting both equity and credit markets; businesses and personal investment values as well; and, the discretionary spending power of virtually everyone and every business. While during past downturns we have seen mixed results -- some companies doing ok while others not -- it is very difficult to find winners in this global environment.
This means that companies, all companies really, must do two major things with regard to their global supply chains:
1. Find every bit of cost reduction and efficiency gain possible without degrading service, especially to their key customers, and
2. Determine what selective investments in supply chains will payback in the near-term when the economy begins to turn around.
This is the dichotomy that we have to figure out how to do. It is critical to not only become more efficient -- but also to build toward more effectiveness, before our competitors do, so that they can take market share and recover faster and in fact, come out of this recession even stronger.
Jim:
Okay. But how does this challenging economic climate, change the ways in which companies view their supply chains and the value they seek from them?
Gene:
This question is very interesting, because during past downturns, when supply chains were not viewed in holistic or global terms, drastic cost reductions were initiated, but really were on a fragmented basis. Freight, warehousing, and/or distribution costs were often targeted without full understanding of their supply chain impacts; and, since most operations were domestic (with some exports,) this was somewhat straightforward.
But today, with global sourcing and distribution, and with numerous international supply chains, it is more complex to transform any global supply chain. "From supplier's supplier to customer's customer" has become the synonym for 12,000 mile supply chains we've all become more and more used to, that have literally weeks in duration. And, balancing supply and demand is even more difficult than before.
So, what we are seeing, and helping our clients with, is the paradox alluded to earlier of working to reduce costs while at the same time also improving service. Yes, it can be done, as we have the knowledge and supply chain methods today that were not available before. We can better deploy the right inventories in the right place in the right amounts. And, we can be more certain that out-of-stocks do not cost us sales. And, we can design a more flexible supply chain than before, which is all good news for those companies who understand how to get better.
Jim:
Yes, Gene, we do see folks who are willing to reduce service to reduce costs. But doing this from a link in the chain view does not result in a stronger supply chain. So yes, we must both reduce costs and improve service.
So using one's supply chain to differentiate oneself is what leading organizations are doing. How do they do this, and how are they successful, and why or why not?
Gene:
When a company or executive team decides that their supply chains are important and can bring value, and not just expense, then amazing things can happen. Creativity and innovation 'kick-in' and people can design truly differentiating methods that both delight their customers and contribute to their overall value of the enterprises.
We are all familiar with the supply chain leaders -- year after year, companies like Dell, Wal-Mart, Apple, P&G, Toyota, Nokia, Samsung, Tesco, Hewlett-Packard, for example, -- that lead their industry segments, and outperform their competitors in returns on capital employed. Why? Because they provide something special to their customers, beyond the products themselves -- through services, speed, ease to do business with or other supply chain advantages that can come.
Yet when others try to 'copy' them in some way, they often fail. New initiatives do not yield promised improvements. IT investments fail to deliver expected ROI. Or projects languish without results, and continue to go on and on and on. These companies do not focus enough on the keys to success -- first, one, getting people, processes, and technologies all aligned for new action; two, improving the business processes and supply chain decision-making -- how are we going to make decisions going forward compared to some of those fragmented and bureaucratic ways of the past; and three, dealing with change the right ways so that it really sticks and is sustainable.
Jim:
Okay, Gene, so how important is an optimal supply chain to a business? Also, why is it important, and is this sustainable?
Gene:
How important is an optimal supply chain network? Those companies that understand what 'optimal supply chain' means will, again, excel. This is not optimizing transport, or distribution, or procurement, or inventories -- it refers to the entire supply chain. Jim, you discussed earlier the concept of "total delivered cost" and its importance. We developed this at P&G years ago as the best cost measure of the total supply chain -- to include ALL costs that go into sourcing, making, moving, storing, and selling a product type. A company spends money to start this chain and doesn't get this back until it collects from the customer.
Likewise, we can measure the total time required to do these processes for a given product type, from beginning the chain to ending it. We used to say a supply chain starts when we think about a plan, and ends when a product is delivered and a customer pays us. Third, we can measure the 'quality' for the entire supply chain -- i.e., the errors, the rework required, the gaps in service, or the other problems a supply chain have or incur.
So, optimizing the supply chain means bringing each of these to a fully optimized state -- for costs, time, and quality -- from end-to-end, or from source to customer. Is this important? For sure, and not just because of minimizing costs, time, and quality; but, for the levels of service this process forces companies to decide -- by customer, by product, and by business model or by process. And, sustaining this optimization means changing the supply chain as necessary when one of these things changes -- whether the customers change, products change, or the processes change. We still need to optimize the supply chain on a regular, continuous basis.
Jim:
OK, one more question. Major supply chain transformations often fail due to organizational, cultural, or people problems. How do the best companies handle these barriers to change?
Gene:
Good question. I mentioned earlier that "change" is a key success factor that companies often do not succeed with when they adopt best practices. In fact, more transformations or major projects fail due to these barriers than to any other. No matter if it's the best solution, the best technology, the best practice, the best process, even the best initiative leader -- it doesn't matter what -- without the organization, the culture, and the people buying into it, learning it, and being rewarded for adhering to it -- it simply will not sustain.
We know from our many clients that organizations, decision-making processes, and teamwork methods are really rarely viewed as effective. People are people, and human factors will enter into each situation. The question is how to take that on from the beginning, and bring people along with the initiative, so that they are a part of the solution and not the problem. For example, the Toyota-based Kaizen process produces more sustainable continuous improvement in repetitive processes than most all the other methods combined -- why? Because the teams themselves, the people, self-improve the way they work: the flows of information, their cost, their time and their quality -- self improvement.
In this global economic downturn, we are seeing more emphasis on change. First, people have to accomplish more with less; second, because efficiency will be the number one goal; and, third, because global supply chains are being changed rapidly -- networks of product flows and other information flows, routings, facilities, inventory positioning, you name it, things are changing in the supply chain.
People must change their ways of doing things, must adapt more to today's realities, and really must create and innovate the supply chain to meet the two critical objectives I started this entire discussion with -- cost reduction and achieving supply chain advantage. Yes, we need to reduce costs across the supply chain to survive and prosper in an economy like this. But too, we also must have selective investments into what's going to make us stronger than our competitors coming out of this recession.
Making the right investments in creating supply chain advantages are going to pay off dramatically when the economy turns, and people and businesses start buying again, because we know the supply chains compete, and the best supply chains are going to be winning just as they have been over the last five to ten years.
Thanks Jim, and I hope this has been helpful to people.
Jim:
Thanks, Gene. These views and experiences are especially helpful to companies and executives as they struggle through this global downturn. It is very important that companies do not become like the ostrich, and just focus on cost reduction. They must in addition to the cost reduction efforts understand the true value of their supply chain, which is to provide competitive advantage.
This concludes this podcast. We will continue these as we drill into the business processes of buy, make, move, store, and sell. Thanks for being with us today, Gene. We look forward to speaking to you all again, real soon.
