Over the past several months, Advantexe has been asked by a number of clients to develop business acumen skills for audiences within supply chain management (SCM). The sudden interest in this area of the business got me thinking: Why this trend? What's going on? What does it look like?
This blog will share some interesting insights.
Why? Each of these engagements has focused on one key theme: in order to for supply chain leaders to be truly effective at their jobs, they need to be aligned with the overall strategy of the organization and have the skills to make the right business decisions in their roles.
In other words, if an organization's value proposition is Product Leadership, then it is counterproductive for the SCM team to focus on selecting the cheapest, lowest-quality vendors. Selecting the wrong suppliers or vendors isn't just bad decision making; it can destroy an organization. We have all followed the problems that Toyota has faced over the past few years, and a little digging illustrates that some of the problems have been caused by an overzealous focus on "lean manufacturing." In a recent Wall Street Journal article there was an interesting passage:
David Meier, co-author of "The Toyota Way Fieldbook" and founder of a consulting company on lean manufacturing, said there is a "trade-off" with standardizing parts across the company.
"The cost may be decreased in the short term, but the risk is increased," Mr. Meier, a former group leader at Toyota's factory in Kentucky, wrote in an email.
In the Toyota situation, a defect causing its gas pedals to stick has forced the company to halt sales of more than half of its U.S. models. The Japanese auto maker has also recalled an unspecified number of cars in Europe. Chinese regulators have also ordered the recall of about 75,000 RAV-4 sports-utility vehicles.
Standardizing parts across different models is a common practice in the automobile and electronics industries. It's one aspect of lean manufacturing that allows companies to simplify production methods and create economies of scale to cut procurement costs.
Toyota's competitors have experienced the pitfalls of such efficient manufacturing practices as well. In October, Ford announced a recall of 4.5 million cars to address a fire hazard involving a faulty cruise-control deactivation switch used across different models. That brought the total number of Ford cars and trucks recalled due to the switch to 16 million vehicles since 1999. At the time, a Ford spokesman acknowledged that the switch had led to vehicle fires although there have been no serious injuries or fatalities.
What is a Business Acumen Workshop for Supply Chain Management?
We believe that in order for the supply chain function to be most effective, leaders must understand the business strategies of their organizations and their roles in executing those strategies. A great method for developing critical business acumen skills is the use of a computer-based business simulation. In many of our SCM programs, we give participants the chance to "run" their own global manufacturing and distribution companies.
Specifically, participants:
- Work in teams of 4-5
- Set the strategy for their organization
- Execute that strategy through operational decisions in the areas of marketing, sales, and all operations, including supply chain
- Understand their business results from a financial and business perspective
- Develop a deeper sense of customer segments and needs
- Develop the ability to assess and understand competitors
- Understand the relationship between operational effectiveness and executing strategy
- Specifics: How does it Work?
Within a typical SCM business acumen program, we recommend four simulation workshops, each representing one year of business. By participating in four workshops, participants have the chance to realize the trade-offs between short-term and long-term decision making and outcomes.
We begin by introducing participants to the simulation experience and laying the ground rules for the exercise. They learn about the decisions they must make, the primary demand drivers in the simulated marketplace, their competition, customer segmentation, and more.
After being introduced to the storyline, participants are broken into teams and take control of their own simulated companies. They are responsible for running a global business with multiple products in multiple markets with many supply chain challenges. The emphasis of the simulation experience is on executing the supply chain strategy in the context of the overall business strategy.
Teams begin by choosing a strategy for their companies. That strategy will transcend the simulation experience, as all of the supply chain decisions should align with the strategic direction they choose.
Operational and Supply Chain Decisions
Participants will be required to make numerous operational and supply chain decisions in support of the strategy. The output of those decisions will be financial, market, competitive, shareholder, and operational results. As teams repeat the simulation in each workshop, they begin to see the linkages in the system of business between decisions made in one area and results or impacts in another.
- Decisions include:
- Supplier (raw material) decisions
- Supply Chain Planning – demand and inventory management
- Logistics transportation, warehousing, inventory (version) management, product inventory management
- Infrastructure Planning – manufacturing plant locations, training, quality of workers, technology support, outsourcing relationships
- Other Topics: product quality, safety, economic conditions, special contracts
Other Decision Areas
In addition to their supply chain and operations decisions, teams are responsible for performance of the entire organization. To that end, they must make decisions in a number of other areas of the business, including:
- Marketing
- Pricing
- Service
- Sales and Distribution
- Research and Development
- Financial Planning
As they make these decisions and begin to see the "big picture" of business, they will come to understand the important impacts of effective supply chain management on the entire system of their organization. Upon completion of the program, participants have a much better understanding of their role in a strategic context, and how to execute an SCM strategy that aligns with larger organizational objectives and goals.
So What?
Do you see an emerging focus on supply chain management in your business or industry? What have you been doing to help your organization improve its SCM processes? We are always happy to hear stories or answer questions, so leave them in the comments!
