Written By Rajendra Choudhary
Senior executive’s outlook towards supply chain tends to differ considerably from that of supply chain manager’s. While SCM professionals concerns are usually operati,onal and immediate in nature, senior executives prefer looking at the slightly distant supply chain objectives. The increasing realization of supply chain’s strategic re,levance is prompting senior executives to increase their involvement in the supply chain affa,irs of the organization albeit at a macro level.
In the recent years, the scope of
modern supply chain has expanded
greatly. From its earlier definition
which was more or less restricted to
the movement of goods, warehousing, and distribution, it has now widened
to include everything from planning and
product design right through to providing
services to end customers. Also, unlike
in the past where different supply chain components functioned in silos as disparate units, organizations nowadays ar~
increasingly trying to bring them together
and look at them as part of one single
chain. Though, this view of supply chain
can result in better governance, visibility
and greater accountability; while attempting this, organizations are often left with a
host of interfacing supply chain functions
and integration issues. The lower level executives or operations dnision responsible for various functions neither posses
the organizational 3dboriq’ nor the vision
to address these conccms beyond a point.
To complicate matters even further,
there’s the cross-functional relationship
with organizations such as sales, marketing, finance etc. that hm’e their own sets
Contrary to sales and marketing man- gers, supply chain managers are the operational experts working in the ‘shadows’. While sales and marketing functions focus on how best to serve the customer by offering new products or services, it is left to the supply chain manager to facilitate the same while performing a balancing act between the time-to-delivery and cost-to-serve the customer.
There are other occasions when sales’ and supply chain’s paths cross frequently. For example, when sales insists on greater product variations and shorter production runs because of constantly changing market dynamics whereas production would want the exact opposite. Merchandising might ask for frequent product introductions and .smaller shipments, whereas it might not make sense to logistics because it could increase the cost-to-serve.
Such instances require people with organizational authority to effectively manage these relationships. Senior management personnel such as the chief executive officer (CEO), chief operating officer (COO) or the chief finance officer (CFO) wield the powers needed t@configure these relationships and take corrective actions wherever required. Given this, the criticality of executive participation becomes rather obvious in the supply chain context.
Another reason why supply chains are demanding executive attention is because they are starting to playa significant role in determining the competitive edge and profitability of organizations. While the two factors aren’t the prerogatives of the supply chain solely, and other functions such as sales and marketing are also equally important, the overall health of supply chain is fast becoming a differentiator for a company’s success.
“Supply chain plays a crucial role in two key aspects of any business-the operating efficiency and cost when it comes to profit and loss. Competitive advantage is still a direct result of the operating efficiency of the supply chain and responsiveness of the production and distribution processes,” opines Oeepak Kaushal, project head (SCM), AFL. “As far as cost is concerned, supply chain presents the biggest scope for reducing expenses. Of course, there are other avenues where it’s possible to cut down costs, but overall, when you look at supply chain, starting from planning till the positioning of the product in the marketplace, it is the biggest spend for organizations. As these issues are of strategic importance to a business, it only makes sense to have senior management and CEO level involvement.”
C-CLASS THINKS DIFFERENTLY
The C-class’ attitude towards supply chain tends to differ greatly than their operational colleagues, consequently they behave differently when it comes to identifying areas of concern and resolving issues. For instance, when trying to cut costs and optimize logistics expenses, operations personnel will probably look at consolidating shipments or reducing the amount of air being shipped in the boxes or they’ll evaluate alternative modes of transport. However, a COO or a CFO may not necessarily limit his focus to smaller operational changes. They will look at the overall supply chain from a holistic perspective and scope out opportunities for introducing changes that could have greater strategic impact on the supply chain operations, sometimes even changing its fundamental structure.
When an international retailer asked its COO about what changes can be introduced to improve the profitability and market competitiveness over a three year horizon, the COO responded by introducing greater focus on supply chain and benchmarking initiatives. Instead of concentrating on reducing costs, he looked for ways to improve margins.
Initially, the company was focusing mainly on reducing logistics costs and in two year’s time it saw $11 million come through some buying structure changes and another $3 million from consolidating volumes into fewer vendors. The following year it witnessed another million dollars coming its way from logistics and $6 million from buying structure changes. In that same year, however, the company witnessed $130 million come through product development process changes.
“This is what an executive involvement can result in. Essentially any C- level per- ..son, be it a CEO or COO or a CFO, their involvement with supply chain is about how they can bring in structural changes that drive out inefficiencies and place them in a better competitive position,” says Oevangshu Outta, Chief Executive, Third Eyesight.
While the arguments made above support the cause of senior managemen nvolvement in supply chain affairs, it shouldn’t at any juncture be forgotten that though supply chains are a strategic enabler and can act as a differentiator in today’s business, it’s not the job of a CEO to run the supply chain of a company.
“It obviously helps if the CEO can look into the supply chain on a consistent basis and address arising issues, but he doesn’t need to devote extra special attention to the supply chain operations,” dpines C Devadas Nair, Customer Care Associate & Head Supply Chain & Mission Control, Shoppers’Stop. “Rather a CEO’s role in the supply chain should be of a person who provides direction to the supply chain and where it’s headed at a strategic level. Operational or tactical issues at the micro level shouldn’t be his concern, especially when there are operational heads looking. after and working out the nitty-gritties.”
EXAMINING CEO’S INVOLVEMENT
IN THE SUPPLY CHAIN SO just how deeply engaged do Indian CEOs tend to be in the supply chain matters?
Well, at least for a good number of Indian CEOs their involvement with the supply chain appears to be direct and fairly regular as per their respective internal arrangements. At Acer’s fortnightly planning meetings the managing director is a permanent fixture. In addition to the MD, the party comprises of the sales head, the marketing head, the supply chain head and his team from the operations side.
These meetings are convened primarily to assess inventory status-inventory held at distributor and reseller level, inventory in hand, material requirements, new product introductions, their configurations etc. and plan for the upcoming weeks. By its own admission the company is very conscious about its inventory, and so it occupies a considerable amount of time.
“Our internal systems and processes are such that we monitor inventory almost on a daily basis, not just at our level but also at the MD’s level. He likes to keep a tab on the stock levels, whether it is high or low, based on which we decide whether to push for sales or provision for additional material. This is done almost three-four times a week and seen at the MD’s level,” informs Sudhir Goel, chief officer, supply chain, Acer India.
Although it’s difficult to generalize specific supply chain interest areas, as they tend to vary from company to company, Indian CEO’s primary concerns tend to revolve around inventory, procurement and logistics. This is primarily because cost of running a profitable organization has gone up significantly in recent years and supply chain components such as these tend to tie up a sizable amount of working capital and stand out on the balance sheet.
CEO’s ~-ebadtobecome more mindful of inventory and pun:hasing because the seDer’s marld era has long since ended. No more can companies afford to simply ~ production and pass on the inefficiencies to the consumer via higher prices. So they bave no choice but to cut costs and supply chains present an opportunity hI doingjust that. “lncreasing(~.”lod:ihoo.. constant stress on growth and tighter- equity markets are just some of reasom dining CEOs and senior management to ::oak at the supply chain as an area that om provide them with more visibi!ity intc the operational working capitalw iofmms ;\jari Viswanathan, Research ~ Supply Chain Management, AbenIeeo Group.
Also, inherendJ. CEOs are a breed that evaluates every ~ of the business in terms of cost and pmfitability. So when,it comes to supply cbain they tend to asses strategic and 6na:ociaJ feasibility of a certain initiative purdy in tenns of cost.
Another indicator of extent of senior management involvement could be their participation in matters that can potentially have significant bearing on either the overall supply chain or its components. For example, it is not uncommon for senior executives, at times even CEOs to personally engage in talks in the later stages of
Source: LOGISTICS MANAGEMENT
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The Third Eyesight Knowledge Series© comprises of workshops designed and developed to help functional heads, line managers and executives refresh and upgrade functional and product expertise.
The Soft Goods Series is specially focused at the Clothing, Textile and the Fashion Industry. Within this, the Textile Facts & Fabric Sourcing module is aimed at developing a working knowledge of fabrics commonly used by the apparel industry; identifying the domestic and international source markets for these textiles; understanding the costing of textiles based on the value add and finishing processes; and familiarizing participants with the common and varied end uses of these fabrics.
Dates: 4th & 5th July 2008
Duration: 10 a.m. to 5 p.m.
Venue: PHD Chamber of Commerce
August Kranti Marg, New Delhi.
Workshop Fee: Rs. 5,500 per participant (plus service tax)
Other modules in the Series cover topics related to Product Development, Supply Chain Management, Merchandise Buying and Planning, Business Communication and Fashion Brand Management. The workshops have been designed as an integrated series. However, each module is complete and self contained and participants have the flexibility to select independent modules based on their training requirement.
Participant profile: Production Managers and Coordinators, Merchandisers, Retail buyers and Product Developers, Buying House Merchandisers.
For further information please contact us at +91 (124) 4293478, 4030162.
Why do entrepreneurs start companies? Why do individuals form organisations?
An obvious reason is that they cannot do everything themselves. Another is that they don’t have all the resources / skills that are needed to grow the business. If they work well, teams can certainly achieve more than individuals alone.
However, another compelling reason comes to mind for creating an organisation – the concept of immortality.
All living beings are susceptible to the phenomenon of “death” at some point of time or the other, and immortalise themselves through producing the next generation through reproduction.
Just as reproduction is a way to immortalise the genetic code of the species in our next generation, organisational development is a way to immortalise the “genetic code” containing ideas, principles and philosophies.
However, this can only happen if the leader / founder / entrepreneur faces the Big Reality: “I am mortal”. Once he or she faces that fact, there are two choices for him / her – the organisation / business can die with him or her, or there can be another generation to carry on the genetic code.
Mortality is the root / route to immortality. If one is truly wedded to the principles of the organisation, one will create the framework and the environment for the next leadership to emerge, and will nurture the next generation to the leadership position.
The route / root to Immortal is “I M Mortal”!
A couple of great resources come to mind, both from Jim Collins and his co-authors: “Built to Last” and “From Good to Great”. (A great concept from the latter book is that of “Level 5 Leadership” which is well worth a read.)
When we began studying the basic fundamentals of marketing, our professor introduced us to the 4-P framework covering Product, Price, Place and Promotion created by “the Great P” of Marketing, Philip Kotler, whose textbooks are classics among marketing management studies.
In time, others modified it to 5-P, 6-P and 7-P, but the basic framework stands best on the original four legs defined by Kotler.
The principle is that to design an effective marketing strategy you need to:
If you are truly disciplined, you may then extend any of these into spider-webs of clearer attribute definition. For instance, when you get involved with defining the product it can start from “breakfast” and then be further defined by attributes such as taste (e.g. sweetened or unsweetened), texture (e.g. crunchy or wet), fullness (e.g. light or filling), and go further into the benefits (e.g. helpful in losing weight, or in gaining body mass) etc.
Given that the basic framework is straight-forward and simple to apply, when we ask the question “what is your marketing strategy”, it is surprising to get the answer: “advertising”. It gets somewhat more distressing when we interrogate further, when we examine what the advertising is focussed on: “cheaper prices than competition”.
Okay, let’s grant a couple of reality checks here. One is that most retailers and consumer goods companies in the current stage of the market’s growth want to grab the maximum possible market share in the minimum possible time. Two, if you want to get the attention of a lot of customers very quickly, shouting out a great price offer is one of the easiest ways to do it.
Which brings us to the basic issue: in the current market scenario, if you are a retailer or if you have a brand that you want to scale up fast, advertising extensively about the “great value” is highly likely to quickly give you the footfall and conversions you need.
But the question is, when does it stop being a good tactic and just becomes lazy marketing? And once it’s in that territory, when does it become dangerously weak even as a sustained tactic?
Imagine a scenario with me: the CEO strides into a marketing strategy meeting and says, “I want you to stop advertising the way you do. In fact, I want you to stop advertising, period. But I don’t want sales to drop and I don’t want our brand image to suffer.”
Shock, horror, dismay at the thought of “where is this company going”? Resignations, even, on the CEO’s table?
But just stay with that thought for a minute, and then look at Kotler’s framework again.
Let’s look at “product” holistically because, in the noise of high-decibel advertising about low prices, typically the definition of the “product” is the first to slip from attention. How the customer relates to the store, what her experience is as she walks through from the entrance to the check-out and beyond is part and parcel of the “product”. What does she think the store is about? Does her perception of the store’s “product” (the entire experience of shopping) match with the retailer’s own perception? Does the retailer even have a clear perception of his product?
Secondly, “place”. Sure, in-store product placement is frequently governed by the marketing function. But how many retailers have marketing involved in selecting the store location? A great store location is the best live, “walk-in advertisement” that a retailer can have. If a fashion brand like Zara can eschew advertising (founder Amancio Ortega has been quoted as saying that “advertising” is a distraction), and instead focus on its stores to create the traffic and the awareness about the brands, surely the store location should receive some attention from the marketing heads of food and grocery companies.
Let’s also reconsider how much connection there is between the marketing strategy and the store layout itself (in many cases it is not enough). Whether the customer likes wide aisles and a “clean” experience or prefers a chaotic environment, the store must make a statement that is in sync with the overall business strategy and the target customer. Good retailers understand this intuitively, but it is important also to express it overtly within the organisation and get the marketing team involved in the planning and execution. Further, once the customer is actually in the store, clear price ticketing, intuitive adjacencies and clean signage can make a tremendous difference in converting walk-ins to purchases.
Let’s leave price alone for this inquiry because, whether high or low, it gets a lot of attention anyway, and let’s move to promotion.
If we define marketing’s role as getting customers into the store and getting them to buy, then the surely promotion is the driver of the marketing engine. But does promotion necessarily have to mean advertising?
We’ve discussed Zara’s example of using the stores as the medium of promotion. Another thing that works for Zara is word of mouth publicity, as well as the humongous amount of publicity the company gets due to its business model. (Other interesting companies, such as Pantaloon, Reliance, Wal-Mart, The Body Shop etc. also enjoy promotion through publicity.)
Pizza companies use cost-effective menu flyers dropped at the customer’s door and “box toppers” to drive the next purchase (yes, of course, they also advertise hugely, but during their lean years when they have had to reduce advertising, it is the flyers and box-toppers that have kept them going.) Direct selling companies can also offer some learnings about creating and sustaining interest, as do entrepreneurial start-ups. As a matter of fact, think of the last time you saw an advertisement of the most popular “unbranded” take-away in your area. Ever?
It may be time for us to dust off the notes from the Marketing 101 class, and re-examine what we do.