The Limits of Excellence

It's time to toss aside the buzzwords in supply chain management and advance to the next stage of manufacturing excellence. Words like agility, flexibility, and speed have become synonymous with best-practices in supply chain, but even as these terms define what executives aim for, the reality is that they are now considered foundational practices that cannot be compromised. A supply chain system worth the name must have them. Period.
If that's the case, excellence might seem to have a limit. In some ways it does. Perfection in one segment of an enterprise is worth celebrating, but it must be joined with the competitive edge other sections can provide. As I noted in a recent blog, customers now take for granted certain levels of quality and delivery, having assumed that a company must at a basic level meet these lofty goals just to match its peers in competitiveness. In order for a supply chain system to help the entire enterprise stand out, it must align itself with and work closely with other critical departments, including design, sales, and marketing.  
EBN contributor and industry veteran Ken Bradley addressed a similar vein in his latest blog, in which he explained why businesses need to stay focused on total cost and competitiveness issues. Ken's blog pointedly avoided conflating pricing and costs, both of which are related but also quite different in certain ways. By focusing on total cost rather than on pricing alone, companies can improve their competitive positions through examining all parts of the operation for savings.  )

Contrary to what you might expect in a fragile global economy, there won't be much talk about, or activism on, how top companies will rely even more on their supply chain to beat the competition in 2013. This year, manufacturers will be very focused on maximizing innovation and using their design chains to introduce new, share-winning products.

In other words, they will rely more upon their supply chain systems but talk less about its efficiencies.
That's my forecast for 2013, but you might be right in questioning that assumption, so let me explain. First, I am not implying that an efficient supply chain will become less important to manufacturers. Far from it. In fact, manufacturers and services companies will rely even more on the efficiencies and competitive advantages they can squeeze from their supply chains.
They need more, though, to win, because leading companies already have, or are in the process of setting up, first class supply chains as the baseline for their manufacturing operations.
The harsh reality of today's manufacturing environment dictates that supply chain departments deliver expertise as a fundamental part of their operations. In other words, the vice president or director of a supply chain must -- at a minimum -- provide market-matching/beating efficiencies and agility.
It would, of course, be preferable if they leverage supply chain resources to create competitive advantages for the enterprise, but even this will be seen as a "must-have" in the future by companies, rather than a system for which anyone should be given an award.
Much as we take for granted certain fundamental rights and necessities in life, a functional and well-executed supply chain management system is now seen by top executives as integral to operational excellence. As a result, companies are no longer willing to settle for a lesser system.
There are good reasons for this development. The supply chain evolved first as a support structure for businesses, and was then refined as a center of excellence for driving cost efficiencies.
Since then, the emergence of a hotter-than-usual competitive environment in certain high-visibility, economic sectors -- for example, consumer electronic products such as PCs, smartphones, and gaming devices -- have driven home a new reality for companies: Winning can no longer be secured by merely having prompt, efficient, and cost-effective production and deliveries (the cornerstone of the most agile supply chains), but especially through design, sales, and marketing excellence. Customers -- whether ordinary consumers or enterprises -- expect to pay the lowest possible price and promptly receive products. They also expect these products to work at the highest efficiency level.
Manufacturers that have prospered on the basis of having the most cost-efficient supply chains will find themselves in 2013 deprived of some of the advantages such systems gave them in the past. Supply chains will still be expected to perform at peak levels, and winning companies will still need this to win, but if that's all you expect to deliver as a supply chain executive in 2013, you should rethink this strategy.
In 2013, supply chain executives will need to work even more closely with their counterparts in design, distribution, sales, and marketing. This teamwork is what top executives need to deliver winning products -- not just a supply chain structure that prides itself on being agile and cost-effective.
Is your supply chain primed for this?

Maybe I'm fixated on cost and competitiveness, but over Christmas, two things happened that drove me to ponder these themes. The first is that I was given a Boxee Box as a gift; the second is a technology, entertainment, and design (TED) lecture that I heard via Boxee by an incredible 19-year-old woman named Eva Vertes.

The Boxee Box is neither a new nor unique product as there are similar offerings in the marketplace. It brings content to your TV using the Internet in a simple and effective way. Boxee isn't revolutionary; it is just a low cost, convenient alternative to cable or satellite TV. However, like a flu virus identified a few years back, it can wreak havoc on traditional content companies.
The value proposition of the traditional content providers is under attack from this technology alternative. Thanks to Boxee, my $100/month cable bill can be replaced by a little more Internet bandwidth and Netflix. If I wanted to have slightly less convenience, I could just use my PC. This approach is roughly five times cheaper for the same (or possibly better) service. Cable and satellite companies must respond with differentiated business models, alternate business endeavors, or lower costs. As the value of their services drop (five times in my case) so will price. The rapid fall of long distance phone service consumer prices is a parallel example.
My fixation on cost dictates that a company must be the low-cost producer in the market space in which they compete. When heavy competition hits or alternative products appear, companies don't have time to begin cost cutting; they must already be cost effective. They must know that they are! They mustn't believe their own marketing hype; they must know for a fact based on real data that they can win the street fight when they have to. Fact-based knowledge is available through independent, third-party benchmarking like that from Lytica's Freebenchmarking.com and Component Cost Estimator products.
Eva Vertes brought my mind to organizational culture, although her talk had nothing to do with that subject. This remarkable young woman started working on the effects of heavy metal contamination on the nervous system at age 14, moved on to Alzheimer's research and then, at 19 (in 2005), she embarked on cancer research based on insights that most of the cut/chemo/radiate crowd seem to have missed (see: Eva Vertes looks to the future of medicine).
Why should this woman be so creative and productive while working at the edge of the established system? The question contains the answer. She was in the process of learning and getting an education rather than being engrained in the profession and its practices. The idea of being outside the system, tolerating a fringe, and allowing things that are different is at the heart of what has made America great.
While companies have organizational cultures, it is the people, or rather the behavior of people within the system, that determines what the culture is. Most behaviors driven by company culture are based on what they think made them successful in the past. This may be different from what actually made them successful and those behaviors they need to adopt in the future (or today).
I am not in the habit of quoting Einstein, but it appears that he agrees with me:

Anyone who has never made a mistake has never tried anything new. The only thing that interferes with my learning is my education.

And a commonly used one:

Insanity: doing the same thing over and over again and expecting different results.

While organizational culture is a powerful force in enabling results, it can also prevent results. Cultures are based on beliefs and rituals that cause things to be done over and over again the same way. If over and over again is practice, it aids proficiency. If it's a common approach to all problems, it's risky, or as Einstein says, "insanity."