We’re living in interesting times. Presently, companies of all types and sizes are scrambling to figure out how to survive, and how to successfully restart their operations thanks to COVID-19. Social media platforms have been inundated with information. Some helpful, some, well…not so much.
Just before the pandemic, these same sources were filled with starkly different messaging: You need to go faster, cheaper. You need to buy this software package. Lists of things you need to buy, types of people and consultants you must hire, otherwise there will be world-ending consequences for your business. Then my all-time favourite myth – manufacturing is dead. Well, we all just realized at once, that manufacturing and supply chain are critically important to our nation’s well being and must be viewed strategically, not transactionally. Our economy, our health and our safety depend on it. Recently, I’ve enjoyed the shift in topics to discussions about how business may reinvent itself. I’ve been excited to hear and read about firms taking exceptional leaps, and even how competitors have become stronger collaboratively without giving up their respective competitive advantages. Effectively doing away with symptomatic solutions and focusing on the bigger picture for every business. Over the past 20 years I’ve worked with hundreds of suppliers from mined raw materials to electronics to food to massive capital equipment and everything in between. Yet, one supplier relationship stands out for me as I look back, as having been the most trusted, most reliable supplier I had ever worked with. They achieved this with such a simple approach that required nothing other than effort, and which any company anywhere, could implement immediately without outside assistance. This particular supplier was based in South Korea, and their business provided a technology that was not produced here in North America. There was a bit of a language barrier, but almost immediately from the first contact something became obvious – this supplier demonstrated an unwavering focus on listening to their customers. The first 6 discussions with this supplier around technical requirements and capabilities specific to the project I was involved in at the time, whether by phone or email, resulted in the same answer: “I don’t know.” We don’t ever want our suppliers to say “I don’t know”, right? Isn’t that why we contact them, because we expect them to have the answers and then once they provide them, we’ll decide for ourselves if we agree and move on to the first supplier who seems to have the right information at the right price. Or do we? In business, people feel compelled to give an immediate answer rather than make their colleague wait, or due to fear of not appearing knowledgeable. When we call suppliers, we expect them to have all the answers, even if we haven’t properly articulated our needs, or even if we don’t yet fully understand our needs. These expectations, on both sides of the conversation, set the stage for problems because we aren’t creating dialogue. Instead it becomes a transactional approach, which ultimately won’t satisfy the true needs for supplier or customer as gaps always present themselves down the road. Yet firms of all kinds will do this dance day in, and day out. As it turns out, my favourite supplier of all time almost never had the answers when first asked, and most certainly was not the cheapest. However, they were the most reliable, most honest, and had the best quality by miles. “I don’t know” was immediately followed up with “but here’s what I’m going to do to find out for you,” which was then followed up with action. He would tell me when he would respond with the information and did exactly that - on time, every time. If the question was about deliveries, he would respond on time with specific information, and goods would ship and move exactly when he said they would. If the answer was ever bad news such as “we can’t provide it to you that fast” or “we can’t meet that technical requirement”, there was no sugar coating, no excuses. Just factual information, and then suggestions for alternatives and an openness to seek creative solutions. If the answer ever required talking with someone else, he would set that up and facilitate it. That blunt honesty, followed up with demonstrated commitment to action, still remains (to me) as the most powerful value any supplier has ever offered me. And yet it's challenging to quantify at all if the measure is unit cost alone. However, in this instance I could extrapolate how much time I was saving through clear communication, virtually zero quality problems, and only one late shipment due to a labour strike at a North American port. I could also estimate the savings of avoided late penalties from our own customers, avoided lost time and delayed production, because I was able to accurately plan my own business, manage my own costs and subsequently deliver the same commitment of information to my customers. This supplier absolutely didn’t have the lowest price, and cost accounting and unit cost metrics would have insisted I dump them for cheaper options. But I estimate (with the values I can calculate) that their strict adherence to honest responses, and equally strict commitment to do what they said they would when they said they would, saved my firm 10.5 times over the cost of buying the “cheaper” alternative from other suppliers over the same time period. Today more than ever, companies could find space to survive or even scale in a cost margin that big. And that was just one supplier, imagine how much it could impact your entire supply chain. COVID-19 has caused our world to change daily. While it has been forced upon us, more and more we are becoming comfortable with saying “I don’t know”, and that opens the door for a real exchange of ideas. It sets the stage to build solid supplier relationships that are based on listening and data and not on saying what we think the customer wants to hear which sooner or later ends up costing time and money for both supplier and customer alike. I love the power of “I don’t know” for all the opportunity to collaborate and deliver real customer-focused value that follows that statement. Supply Chain professionals should continually evaluate and push to understand the multiple layers of their supply chains. Not only is it a matter of due diligence and very relevant for day to day operations, it can produce tangible benefits in the forms of risk mitigation, technical engagement, and building a socially responsible supply chain.
Through the start of a new calendar year when organizations reflect and refresh goals and metrics – strategy moves to the forefront. Within supply chain teams, it is a time for brainstorming ideas, charting direction and evaluating supply chain objectives. This time often results in discussion around deepening the understanding of the complex and multiple layers of supplier partners supporting the organization’s goals. Supply chain teams operating with a systems-thinking approach will often strive to connect with and understand the supply web extending out of their facility, engaging further, pulling additional information and proactively reaching out to establish connections and make introductions to their supplier’s suppliers. These initial engagements will lead to discovery of a supply chain that reached much further than previously known, both in layers of suppliers, and geographical distance. It also allows the Supply Chain team to view supply issues through a different lens with much more context, and to ask more informed questions of tier 1 suppliers when working to solve a problem. Understanding the Multiple Layers of Your Supply Chain As COVID-19 circulated the globe and supply chains started feeling the effects with extended closures of Asian businesses, and then European companies before spreading across North America, understanding multiple layers of the supply chain has become paramount. Business continuity is hinging on the ability of the supply chain to continue to support ongoing operations, and now has company-wide visibility up to the C-level. Supply chain teams that understand the tiers of suppliers and maintain relationships with critical lower tier suppliers will have an advantage in terms of faster communications, and the ability to develop mitigation plans and responses ahead of those who do not. This is starkly visible during the current pandemic but often fades to the background during normal operations – and is equally applicable during regional weather events, or instances of political or labour unrest. It must be noted that the development of these relationships does not happen quickly or easily. Often tier 1 suppliers are reluctant to divulge their own supply base, and especially to provide contacts or access to these key resources. Supply chain professionals must build an environment of trust and be clear on intentions or requirements for mapping the supply chain. Initial discussions or visits can be held between all three parties to ease any tensions. A further benefit when engaging critical sub-tier suppliers is the potential input and impact to designs, and the ability to release new designs faster. For instance, when dealing with electronic contract manufacturers, if a direct relationship exists with the printed circuit board supplier, design choices, reviews and feedback can be done much faster than working through the contract manufacturer as the conduit for communications. This could save days in a design cycle, and weeks over a new product development. It also fosters trust between all parties’ engineering teams, and can lead to the discoveries or introduction of new materials or processes. A similar approach is also true in the design of plastic or metal components, working directly with potential third-party suppliers such as tooling manufacturers or coating providers. Creating a Socially Responsible Supply Chain By understanding multiple layers of the supply chain, teams can build and employ a socially responsible approach when selecting and working with supply partners. The approach to review supplier networks for socially responsible reasons is a relatively recent development which has gained momentum after the passage of the Dodd-Frank Act in 2010, and its implementation in 2012, which requires reporting on conflict minerals by publicly listed companies in the US. More recently, reporting on the carbon footprint of supply chains with the goal of becoming carbon neutral has become the focus of highly developed companies and their supply chains. Volkswagen has committed to becoming carbon neutral by 2050 in compliance with the Paris Climate accord, and other large companies are following suit. All in all, getting to know your supplier’s supplier is a critical element of strategic supply chain management. It is fundamental to the entire system, a keystone to risk management, and critical to business continuity strategies for successful companies. Engaging directly with engineering teams brings speed and new technology to new designs and brings new products to market faster. And socially responsible companies need to know who is supplying their products all the way through the chain, to build a sustainable supply chain and drive continuous improvements. COVID-19 is forcing a rapid redistribution of resources, wealth and economic mobility. Only those firms who are willing to reinvent, shift, and act quickly will survive the wave. As a small or medium business, adaptability, agility, and collaboration will be the key to your success. Here are 4 steps you can take right now:
1) Stop and assess on two horizons
We’re offering free consultations to help firms identify their current needs and next steps during the COVID-19 crisis. Our team have all navigated manufacturing operations through severe economic crisis before, and we’re happy to help and offer any other assistance we can. Give us a call at 519-588-2900 or email Matt Weller at mweller@berlinkw.ca. Good morning everyone. As I reflect on what is happening in your world and mine, observing how people are coping with the COVID-19 pandemic, I recalled how similar this current situation is to my professional career as a crisis leader. Our current situation is not anything our planet has ever seen before however it’s important to remember that, best practices are transferable from industry-to-industry and situation-to-situation.
The worst thing anyone can do at this point is panic and be paralyzed to move forward. Yes, we have a battle on our hands, however we will get to the other side and life will continue. I was taught a best practice for crisis management, both personally and professionally. It has worked for me, the unhealthy firms I was responsible to lead, and incidentally for my family in times of terrible problems. I have learned and polished this best practice for 40 years so I know that it has validity. That best practice is to build a routine. Our current routine has been disrupted. We are creatures of habit. Building a routine creates order in our lives and order reduces uncertainty. Reducing uncertainty, no matter how little, allows us to perform better, in all things, especially in dealing with new uncertainties. As a former Crisis CEO the first thing I did for my people was bring order to chaos by enforcing action and communication routines. We collectively developed and executed a schedule, converting this schedule every day or every week (depending upon the activity) into a routine. This simple practice, always worked. I recommend that you develop a new schedule for your personal and professional activities, converting this into a new routine. I would get this done today as time is the one resource, once spent, that you can never recover. Once you get into a routine, you will note that your performance will dramatically improve as well as your tolerance and innovation skills to tackle new problems. This is a terrible problem that we are all facing but it is also an opportunity for each of you to develop chaos-conquering skills. I leave you with a quote from a wiser person than myself as guidance; “You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before.” Rahm Emanuel Best, Steve Once the ink dries on the contractual signatures, it can feel like a weight has been lifted. Negotiations are over for another round, and both sides have an agreement they are satisfied with – so what now? In long-term partnership agreements, often spanning several years and hundreds of millions of dollars of business between partners, the management of the agreement and the relationship becomes critical. Successful agreements set clear expectations and behaviours for both parties - allowing all involved to focus on improving the overall system that produces and delivers materials, components, or services from supplier to customer. This approach results in better quality, lower prices, and a higher level of engagement between all involved.
Negotiation of supply agreements is a key function for any Sourcing Professional, and requires strategic planning, an extensive knowledge of a firm’s supply partners, and internal cross-functional alignment. Every stakeholder wants to be heard, and wants their say in contract content, planning - and needs to be kept updated through the negotiation process. As the lead negotiator, the Sourcing Professional must be detailed, meticulous, and determined, as well as an excellent communicator to see the supply agreement through to closure and execution. Taking a System Thinking Approach to Contract Management Considering the supply contract from a system thinking perspective, one needs to take a view of how each supplier fits into the overall value chain, and consider the significance that each partnership brings. Involving all stakeholders early in the contract structure and negotiation processes, keeping discussions focused on business and terms at hand, and searching for ‘win-win’ scenarios will ensure that agreements close positively for both parties. In turn, the execution portion of the contract will begin with both firms focused on joint success, collaboration, and continuous improvement in order to achieve the mutual goals set out for the contract term ahead. There are times however, where the path to ‘win-win’ is not always clear. There are situations where a smaller firm relies on a much larger firm for key components to their product. What do we do when a supplier does not need our business? Instances like this require a Sourcing Professional to take on a sales role – selling the organization, the product and the future to a larger supply partner. Additional efforts in the form of constant contact on the phone and in person – and transparency in plans and requirements - lead to credibility between the larger supplier and smaller customer. Putting in these efforts and taking a sales and promotional role can lead to a collaborative reciprocal relationship even with organizational size imbalance. Key Components for Building and Maintaining a Long-Term Supplier Partnership A few things to remember during contract structure and negotiation that will go a long way in maintaining and building a partnership with a supplier after it has been signed:
Ultimately, while negotiation of a mutually beneficial supply agreement is a critical part of the Sourcing Professional’s job – along with securing supply and pricing, governing behaviours, and setting expectations, it is the relationship with the supplier that is the foundation of successful growth between partners. A positive, transparent, reciprocal and cross-functional relationship will lend itself to profitable long-term partnerships. Efficient Product Development is Driven by a System Approach That Continually Considers Value12/17/2019
Nearly all product development is a multi-disciplinary effort, usually with tight constraints on time, cost and function. But most engineering groups tend to design in isolation, where even the different engineering disciplines don’t interact, let alone considering supply chain, manufacturing, service, test etc… The risk is a design that doesn’t meet the business goals and needs to be reworked or adversely affects the company’s performance. I’ve learned this hard way in the past, having to re-design mechanical systems, for example, when they wouldn’t work with what the electrical engineers designed.
There are two principles that will help develop better products, quicker – value analysis (a part of lean and value stream theory) and systems design. Every process is made up of a series of steps or tasks. These tasks may not be linear, there may be a complex set of interactions required, but they always share the same basic structure. Every task includes a set of inputs, has a set of required outputs, has stakeholders who use those outputs, and is done under a set of constraints. The outputs should be based entirely on the value they deliver. The end goal is always to produce a product that meets the company’s goals as outlined in their business case. If the output of any task doesn’t contribute to those business goals, it’s waste. If the output has to be reworked because it doesn’t work with some other part of the design, it’s also waste. The inputs are where many design processes slip. I think everyone will agree that every part in a design is somehow affected by the other parts. It could be as simple as a bracket holding a PCB or as complicated as a motion control system controlling the movement of mechanical components driven by remote user input. The key to effective design is to consider those interactions from the start of design. System thinking is a way of looking at the inter-relationships of parts once they have been combined into a system. A portion of a design may seem appropriate on its own, but when taken in context with the entire system may fail. For example:
System Design is the application of systems theory to product development, taking a multi-disciplinary approach to design and implementation. It’s not a new concept, but it’s one that will save a lot of design time and produce a better design. The key to planning and executing the design is to first to consider the value each task creates. The three primary aspects of value are:
If we understand what value each task is to deliver, we can better understand what needs to be designed, and more importantly what is not required. And that helps determine what inputs we need to carry out that design. Those inputs will typically be from multiple sources including the design specification, outputs from preceding tasks, input from concurrent tasks, and some additional design knowledge and information. If we continually look at how each task is effected by previous tasks and how it is effected by and affects concurrent tasks, we can complete each task in a way the develops the most value for the overall system. By considering the entire system when planning each design task, and the value that task is generating, we can be more effective, producing better designs with less waste. At BKW we're very proud to have our Value Stream Mapping projects guided by Brian Watson. Brian is a supply chain system thinking expert, and he has spent his entire career helping firms across various sectors improve their performance. Brian spent 21 years in manufacturing, enjoying much success improving the performance of the firms he managed. For 18 years, Brian was a Professor of Supply Chain & Operations Management at Conestoga College. Since 2017, Brian has been the Director of the Magna Centre for Supply Chain Excellence at Conestoga.
Through his role with Conestoga College, Brian has been able to share his knowledge and increase awareness of the importance of system thinking in improving firm competitiveness in this dynamically complex global economy. Recently, he authored a whitepaper focused on Canada’s productivity and how system thinking enables businesses to strive for sustainable competitiveness. The following is an excerpt from the whitepaper, Addressing Canada’s Productivity Challenge: Sustainable Competitiveness Through Integrative Supply Chain System Thinking (May 2018). Canada’s economy lags behind many other nations in terms of productivity. It is projected that Canada’s productivity growth rate will be slower than many of its peers over the next thirty years. Addressing Canada’s productivity is a dynamically complex challenge, impacted by international, national and organizational factors. While governments hammer out trade agreements, tax and business policy regimes, there is much that individual organizations can and must do to address productivity improvement. The predominant argument put forward to address productivity improvement is that of investment in technology. While investment in technology is necessary, it is not sufficient in addressing Canada’s productivity challenge. Many SME’s do not have the resources or skills to invest in technology, while other firms invest in technology without truly understanding its impact, often resulting in unintended negative consequences. Organizations must first place their efforts and resources on improving system effectiveness in delivering ever increasing customer value. Only then should investment in technology occur. Effectiveness first, then selective investment in technology where appropriate, in a never-ending process of innovation, knowledge creation, continuous improvement and value creation. Doing so generates much needed financial and human capital and improves operational and financial performance, allowing the organization to leap ahead of the competition and establish sustainable competitiveness in the process. To achieve this, a transformation in thinking and behaviour is required. This paper will identify two key areas requiring the immediate attention of executives and senior management across all organizations. The first is the development of mission critical integrative supply chain system thinking competencies in their organizations. Integrative supply chain system thinking marries training in effective supply chain management with system thinking, then applies these in addressing the productivity challenge. In the process key competencies are developed, necessary for improving an organization’s effectiveness in delivering ever increasing customer value and improved productivity in today’s (and tomorrow’s) dynamically complex global economy. Of note, in 2016 the World Economic Forum (WEF) identified the top ten skills required by organizations needed to thrive in the fourth industrial revolution.* Those top ten skills include;
Integrative supply chain system thinking competencies, when developed as outlined in this paper, and in concert with effective leadership, embodies all of these skills. The second key area requiring immediate attention is that of organizational culture. An organization’s culture must be one that encourages collaboration, risk taking, is focused on customer value creation, adopts continuous improvement as foundational to its strategic approach, and regards all employees and key supply chain partners as critical to the creation of innovative new knowledge. Developing such a culture requires organizational leadership that values and adopts such principles and approaches in the day to day managing of the firm. Unfortunately, such leadership is at odds with traditional cost-focused management culture found in many organizations today yet is absolutely essential to achieving sustainable competitiveness in today’s (and tomorrow’s) dynamically complex global economy. World leading productivity, and with that true sustainable competitiveness in the global economy, comes through the effective application and leveraging of all of an organization’s resources, not just technology. This is true for organizations in all sectors of the economy. It takes skilled supply chain specialists trained in system thinking to effectively leverage all resources including technology; integrating, coordinating, and optimizing them to achieve world leading productivity and system performance. It also takes a leadership culture that fosters an environment in which knowledge creation, innovation, and continuous improvement toward true sustainable competitiveness can flourish. This paper reviews the work of a number of key thought leaders in defining integrative supply chain system thinking. Additionally, a case involving a manufacturing firm is outlined throughout the paper in an effort to better understand the importance of integrative supply chain system thinking to improving organizational effectiveness. Improving productivity in Canada is an urgent matter that must be addressed by governments, business, and education systems alike. Unless taken seriously and accompanied by specific action, Canada’s productivity, and with it our competitiveness and standard of living will continue to fall behind. This paper is a call to action to all organizational leaders to address the productivity challenge. It is also a review of what needs to be in place for improved productivity and sustainable competitiveness to be achieved. If you are an organizational leader charged with the responsibility to improve your organization’s/supply chain’s performance then I encourage you to continue reading. If you would like to read the full whitepaper, please click here. *The Future of Jobs, Employment, Skills and Workforce Strategy for the Fourth Industrial Revolution Report, World Economic Forum, January 2016, as summarized in, Alex Gray, The 10 skills you need to thrive in the Fourth Industrial Revolution, January 19, 2016, https://www.weforum.org/agenda/2016/01/the-10-skills-you-need-to-thrive-in-the-fourth-industrial-revolution World Economic Forum, Retrieved February 26, 2018. |