Reducing the fragility of global Supply Chains in the event of disruption through natural or other disasters is a major concern for most senior executives. This rings true more so now than ever, as the world grapples with COVID-19, the worst human health crisis in 100 years.
The strategies to enhance the effectiveness and readiness level of Supply Chains and to reduce risks associated with disruption come with a price. These costs are critical to build Supply Chain Resilience across all industries.
However, these expenses are, generally, considered a hindrance in the implementation of risk reduction strategies by many leaders. This is one of the major factor that precludes them from anticipating and managing Supply Chain Risks.
Able leaders anticipate these risks and invest in building organizational resilience. They leverage a couple of potent Supply Chain Risk Reduction Strategies that have nominal impact on cost efficiency but offer substantial reduction of disruption risks:
- Diversify supply base
- Overestimate likelihood of disruptions
Diversify Supply Base
It is vital for organizations to diversify their supplier base to avoid disruption of their Supply Chains in the event of a natural disaster. Manufacturers have been found to have been using pooling—combining resources, inventory and capacity by maintaining fewer distribution centers—and producing common parts to help reduce costs. However, too much pooling and commonality can make the Supply Chain vulnerable to disruption.
For instance, relying too much on a single supplier and common parts—in an effort to be as lean and efficient as possible—became a Supply Chain Analysis nightmare and cost Toyota billions of dollars in terms of lost sales and product recalls in 2010. Back then, the auto manufacturer was counting on a single supplier for a common part for many of its car models, which was effective in curtailing costs, but turned out to be a disaster.
Organizational leadership should evaluate the trade-offs between having a leaner and efficient Supply Chain—with common parts and single suppliers—and preparing for and reducing the risks of disruptions. Minimizing the number of distribution centers offers diminishing marginal returns for Supply Chain Performance and increases the Supply Chain Fragility. Creating little bit of commonality presents significant advantages, but when more parts are made common the benefits shrink and it rather becomes detrimental.
The key for senior leaders is to find an optimal balance between resource pooling, creating common parts, and deciding on whether to decentralize or centralize their Supply Chains. Decentralization (e.g., by having multiple warehouses or plants) increases costs as it requires more inventory, but it does curtail the effect of disruption significantly. Centralization or pooling of resources, on the other hand, reduces total costs, but the cost again goes up by centralizing beyond a reasonable degree. Recurrent Supply Chain Risks necessitate focusing more on centralization and pooling of resources and commonality of parts, while rare disruptive risks necessitate decentralization. Achieving a state of equilibrium between pooling of resources, parts commonality or fewer plants helps keep Supply Chain Risks low. Ignoring the possibility of disruption can be very expensive in the long term. Samsung Electronics Co. Ltd. always maintain at least two suppliers, no matter if the second supplier supplies only a fraction of the volume.
Overestimate Likelihood of Disruptions
The risk of disruption of supply chains due to any unforeseen event is typically considered a rare possibility and goes unaccounted for during planning by most executives. A fire break out at a distribution center, defective auto part, or a supplier’s facility closure for a prolonged period of time can happen anywhere, but we tend to underestimate the likelihood of such events. The reason for this is attributed to the requirement of assigning a significant chunk of investments upfront from the already limited resources and budgets, to prepare for and mitigate likely disruptive risks.
Most of our typical risk assessment measures involve approximating the probability and the likely damage caused by an event. Estimating the likelihood of disruptive risk to a reliable degree isn’t easy even for large multinationals—even an auto manufacturer like Toyota could not anticipate the occurrence of the part failure issue until the damage had been done. These risk estimations do not have to be strictly precise. Rough estimates of disruption risk are fine—any small mis-estimates that occur have negligible consequences.
Senior leadership needs to cautiously contemplate the areas that are likely to get affected the most due to potential disruption. Building resilience does not cost much for large organizations. In the long term, doing nothing costs much more than investing in preparing for a probable disruption. When disruption occurs, the loss incurred greatly exceeds the amount of saving executives save by not investing in risk mitigation strategies.
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Supply Chains often get disrupted by calamities that are beyond human control. Natural disasters, such as tsunamis and floods, in the last decade have drastically affected major businesses—from automobiles to technology, to travel, to shipments—and exposed critical weaknesses in Supply Chain mechanisms around the globe. And, now, we are living through a global disruption of an unparalleled nature, COVID-19.
Organizations that rely on single-source suppliers, common parts, and centralized inventories are more susceptible to the risk of disruption.
Management in most cases is aware of its responsibility to prevent their Supply Chains from getting disrupted by ensuring measures such as keeping enhanced stocks, improving capacity at discrete facilities, and choosing multiple sources. But these measures have a negative effect on Supply Chain cost efficiencies.
However, discerning the effects of costly Supply Chain disruptions is one thing and taking actions to avoid such situations or mitigating their undesirable effects is another. Managing Supply Chain risks necessitates careful evaluation of the impact that these measures have on Supply Chain cost efficiencies and bottom line. During the COVID-19 pandemic, it has become clearer than ever that Supply Chain Management must also involve this form of Risk Management.
Supply Chain Efficiency entails improving the financial performance of an organization and focusing on improving the way we manage supply and demand. Demand fluctuations or supply delays are independent and can be typically tackled by having appropriate inventory levels in the right place, better planning and implementation, and improving Supply Chain Cost Efficiency.
Supply Chain Containment
Supply Chains are complex operations encompassing many products or commodities that are sourced, manufactured or stored in multiple locations. These complexities can slash efficiency, cause delays, suspension of operations, and increased risk of disruption. Containing complexities brings higher cost efficiencies and reduced risks.
Supply Chain Containment ensures that Supply Chain disruptions caused by internal factors or through natural hazards are contained within a portion of the Supply Chain. A single Supply Chain for the entire organization seems cost effective in the short term, but even a small issue can trigger a disaster.
Supply Chain Containment Strategies
Supply Chain Containment Strategies are useful for the organizations to design and deploy solutions fairly quickly in the event of disruption through natural disasters. The objective is to limit the impact of disruption through disasters to a minimum—to just a portion and not the entire Supply Chain.
For instance, in order to reduce the impact of parts shortage, a mechanical parts manufacturer should arrange multiple supply sources for common items or limit the number of common items across different models. To reduce Supply Chain instability and to improve financial performance, organizations can use the following containment strategies:
- Supply Chain Segmentation
- Supply Chain Regionalization
Supply Chain Segmentation
The basis for Supply Chain segmentation are volume, product diversity and demand uncertainty. High margin but low-volume products with high-demand uncertainty warrant keeping Supply Chains flexible, with capacity that is centralized to aggregate demand. Manufacturing everything in high-cost locations is detrimental to profit margins. Sourcing responsive suppliers from Europe is a model feasible for trendy high-end items only. For fast-moving, low margin, basic products it is sensible to source from multiple low-cost suppliers. Centralization is favorable in case of fewer segments, significant product variety, low sales volumes of individual products, and high demand uncertainty to achieve reasonable levels of performance. Decentralization is suitable in case of higher sales volumes, less demand uncertainty, and more segments, to help become more responsive to local markets and reduce the risk of disruption. For instance, utility companies utilize low-cost coal-fired power plants to handle predictable demand, whereas employ higher-cost gas- and oil-fired power plants to handle uncertain peak demand.
Supply Chain Regionalization
Supply Chain Regionalization helps curtail the impact of losing supply from a plant within the region. For instance, Japanese automakers were badly hit by shortage of parts globally in the event of 2011 tsunami, since most of these parts could be sourced only from storage and distribution facilities in the tsunami-affected regions. Had they operated with decentralized regional Supply Chains with logistics centers dispersed in various locations they would have significantly contained the impact of disruption.
Supply Chain Regionalization lowers distribution costs while also reducing risks in global Supply Chains. During periods of low fuel and transportation costs, global Supply Chains minimize costs by locating production where the costs are the lowest. As transportation costs rise, global Supply Chains may be replaced by regional Supply Chains. Regionalized Supply Chains with same inventory stored in multiple locations appear wasteful, but are more robust in case one of the logistics centers suffers from a disaster.
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Unsuccessful software applications cost organizations significant efforts and resources. The reasons for these failed ventures are often attributed to technology issues. However, the real issue is flaws in business processes—the enterprise application deployment environment and the ecosystem which the application targets.
This calls for ensuring the organizational readiness before initiating technology deployment. It is for this reason the Business Process Maturity Model (BPMM) originated. BPMM helps achieve uniform standards, identify weaknesses in workflows, and create standardized tailored processes that simplify the requirements for enterprise applications.
BPMM’s roots can be traced back to the Process Maturity Framework (PMF) created by Watts Humphrey and his colleagues at IBM in the late 1980s. Process Maturity Framework explores the ways to introduce quality practices in software development. Humphrey and his colleagues introduced incremental stages to adopting best practices in software organization. The PMF served as the groundwork for the development of the Capability Maturity Model (CMM) for software in 1991. CMM then became the foremost standard for appraising the capability of software development organizations.
BPMM ensures the success of enterprise systems by providing proven methods for system requirements validity; accuracy of use cases, and effectiveness of applications; simplification of requirements for enterprise applications; and providing a reliable standard for appraising the maturity of business process workflows.
The Guiding Principles for BPMM
BPMM considers processes as workflows across organizational boundaries. The key guiding principles governing BPMM are:
- A process should be analyzed in terms of its contribution to organizational objectives.
- It depends on the organizational ability to sustain efficient processes.
- Process Improvement should be ideally executed as a phased Transformation endeavor that aims to achieve successively more predictable states of organizational capability.
- Each stage or maturity level works as a groundwork to build future improvements.
BPMM has the following 4 primary utilities.
- To drive business process improvement initiatives
- To gauge enterprise application deployment risks
- To ensure selection of capable suppliers
- To Benchmark
BPMM – Conformance
Evaluating the BPMM conformance is about ensuring that the implemented system meets the needs of the client. Verification of conformance necessitates an effective appraisal technique to gather multiple forms of evidence to evaluate the performance of the practices contained in the BPMM.
The BPMM conformance appraisal should be headed by an authorized Lead Appraiser—external to the organization, trained in BPMM as well as appraisal methods. The team under the lead appraiser should include some members internally from the organization. The BPMM conformance appraisal team gathers and analyzes evidence regarding the implementation of BPMM practices, judges their strengths and weaknesses, and gauges their effectiveness in meeting the goals of the process areas at respective maturity levels.
The following evidence is utilized during BPMM conformance appraisals:
- Review of outputs produced as a result of a process.
- Review of objects, documents, products supporting the execution of a process.
- Interviews with individuals that perform a process and those who support and manage it.
- Quantitative data that depicts the organizational state, employee behaviors, performance, and results of a process.
BPMM Conformance Appraisals
BPMM Conformance Appraisals help assure the implementation of practices at a level that achieve the intent and goals of the practices and their process areas. BPMM conformance appraisals are of 4 distinct types:
- Starter Appraisal: An inexpensive BPMM conformance appraisal—which takes only a few days—that entails gathering quantitative data by conducting few interviews.
- Progress Appraisal: An extensive appraisal that entails quantitative data collection, investigation of all process areas and practices, review of artifacts, and analysis of interviews.
- Supplier Appraisal: An appraisal method to select sources and to make informed decisions during procurement contracts.
- Confirmatory Appraisal: A rigorous investigation of all process areas / practices where all evidence is accounted for.
BPMM – Maturity Levels
BPMM encompasses 5 maturity levels that signify the transformation of an organization on the basis of improvements in its processes and capabilities. BPMM Maturity levels 2, 3, 4, and 5 each contain 2 or more process areas, whereas the Maturity level 1 does not contain any process areas. The 5 successive levels of BPMM are:
The focus of the BPMM level 1 is on achieving economy of scale, automation, and productivity growth by encouraging people to overcome challenges and complete their tasks.
The 2nd maturity level aims at developing repeatable practices, minimizing rework, and satisfying commitments — by managing work units and controlling workforce commitments.
The focus of the 3rd maturity level of BPMM is to accomplish standardization in terms of business processes, measures, and training for product and service offerings.
The 4th maturity level aims at achieving stable processes, knowledge management, reusable practices, and predictable results. Organizations accomplish these results through standardization and managing processes and results quantitatively.
The focus of the organizations operating at the highest maturity level of BPMM is on implementing continuous improvements, developing efficient processes, and inculcating innovation.
Interested in learning more about the process areas and practices at various maturity levels of the Business Process Maturity Model? You can download an editable PowerPoint on Business Process Maturity Model here on the Flevy documents marketplace.
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Business environment has transformed drastically from what it was a century ago. It has become immensely challenging due to competition, disruptive technologies, laws, and globalization. These challenges warrant better performance to address customer needs and to survive—and outpace—intense competition. Consequently, organizations have become complex.
The work that individuals perform in an organization has also shifted from manual labor and clerical jobs to knowledge-based experiential tasks. Traditional workforce was required to adhere to commands and stick to routines, whereas today’s workforce needs to be more empowered, innovative, able to adapt to varying circumstances, and render sound judgment.
Adapting with the constantly changing business environment is essential for organizations aspiring to succeed in today’s competitive markets. In order to stay competitive, more and more organizations across the globe are undertaking Business Transformation programs to reorganize their businesses. However, a large percentage of such programs fail to achieve the desired outcomes.
For the Organizational Design to be successful, leaders need to be mindful of the revolutionized work settings and business environment of this age. One of the major factors attributed to these failure rates is utilizing traditional approaches to reorganization, which are proving ineffective in this digital age. These traditional approaches appreciate “level of control” and power, and underestimate the significance of employee autonomy and innovation.
The Smart Design Approach to Organization Design
Today’s Knowledge Economy necessitates the employees to be more empowered to decide on their own than merely following commands. People act in ways that are best for their own interests. The new approach to reorganization—termed Smart Organizational Design—aligns the workforce’s best interests with the organizational mission rather than seeking control over the employees. The focus is on changing the environment (context) and mindsets of employees willingly and instilling team work and cooperation, thereby enhancing organizational performance considerably.
The Smart Organizational Design approach entails classifying the existing workforce behaviors, ascertaining the desired behaviors critical to improve performance, and providing environment (context) favorable to develop new behaviors. The approach encompasses 3 main steps:
- Define why reorganization is necessary (objective)
- Determine the behaviors critical to support reorganization
- How to execute the Smart Organizational Design
Let’s dig deeper into the second step.
Determine the behaviors critical to support reorganization
The next step involves the leadership to determine the “what” element of the Smart Organizational Design approach—i.e., definition of certain behaviors critical to achieve the transformation purpose. Determining the desired behaviors necessitates thinking through the following 4 critical Smart Organizational Design aspects. These 4 design aspects work in tandem to shift the environment (context) for the workforce and motivate them to embrace the new behaviors crucial for improved performance:
- The Organizational Structure aspect—pertains to management reporting lines, spans of control, and layers of hierarchy.
- The Roles and Responsibilities aspect interprets individual and shared accountabilities to cultivate teamwork and cooperation.
- The Individual Talent aspect specifies the right skill set and motivation to perform responsibilities of each role effectively.
- The Organizational Enablers aspect outlines the elements necessary for creating the right context (environment) for embracing the desired behaviors, i.e., decision processes, performance management, and talent management.
Interested in learning more about the other step of the Smart Organizational Design approach and the factors critical for its success? You can download an editable PowerPoint on Smart Organizational Design here on the Flevy documents marketplace.
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Inculcating productive workforce behaviors is of utmost significance in Business Transformation, successful Strategy Execution, and Performance Improvement. However, making people embrace productive behaviors involves a concerted effort across the organization.
The realization of Transformation, Strategy, and Performance improvement goals can become a reality by developing a thorough understanding of the 4 components of Organizational Behavior. These components act as powerful levers in shaping the desired behaviors in the workforce:
- Organizational Structure
- Roles and Responsibilities
- Individual Talent
- Organizational Enablers
These Organizational Design levers work effectively when combined and aligned. Let’s discuss the first 2 levers in detail now.
Organizational Structure represents the management reporting lines that create the organization’s spans of control, layers, and number of resources. Organizational Structure is a foundational driver to Organizational Design, which also has a strong positive bearing on promoting the behaviors critical to improve the overall performance of the enterprise. This is owing to the power that a position exerts on the subordinates based on factors that are important for individuals—e.g., work, compensation, and career ladder.
The Organizational Structure indicates an enterprise’s priorities. An organization is typically structured in accordance with its top most priority. For instance, functional organizational structure is adopted by enterprises having functional excellence as a priority. In present-day’s competitive markets, most organizations have to deal with several priorities at a given time, which could be conflicting. However, this does not mean adding new structures on top of existing ones, thereby increasing unnecessary complexity. Creating overly complex structures to manage multiple priorities results in red tape and delayed decisions. All roles are interdependent, necessitating cooperation. This means taking care of the needs of others—instead of just watching over personal priorities—and encouraging individual behaviors that boost the efficiency of groups to achieve collective objectives.
Roles & Responsibilities
Roles and responsibilities deal with tasks allocated to each position and individual. Organizational Design depends heavily on redefining clearer and compelling roles and responsibilities—to avoid any duplication of efforts or creating adversaries among team members. In a collaborative culture where cooperation is the mainstay of an organization, individuals should not only be aware of what is required of them, but also appreciate the responsibilities of their team members, the authorities their roles exercise, the skills required, and the metrics to measure success.
A methodical way to outline roles and responsibilities effectively—while minimizing complexity—that encourages cooperation and empowerment is through the “Role Chartering” technique. The technique requires distinctly identifying all roles on the basis of 6 key factors:
- Describing shared and individual accountabilities
- Outlining indicators to track success
- Specifying who has the right to decide what
- Indicating the capabilities critical for roles
- Assigning the leadership traits valuable for the roles
- Charting the abilities required for accomplishing personal and team goals.
Interested in learning more about these components to Organizational Behavior? You can download an editable PowerPoint on Organizational Behaviors here on the Flevy documents marketplace.
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4 Organizational Design (OD) Elements Essential to Inculcate the Desired Behaviors Across the Organization
Business dashboards are important tools to measure key performance indicators and data pertaining to an organization or certain procedure. Just as a vehicle dashboard is powerful performance management tool in summarizing a performance of a multitude of processes, a business dashboard summarizes the performance or impact of a host of functions, teams, and activities; and assists in strategic planning and decision making.
Business dashboards simplify sharing and analysis of large data, and help users visualize complex performance data in simple yet visually aesthetic manner. Dashboards aid in simplifying complex processes into smaller more manageable information pieces for the organizational leadership to focus on everyday operations. They keep everyone on the same wavelength and prioritize display of facts based on their importance and potential impact. The information on a well-designed dashboard is clear, presentable to enhance meaning, readily accessible, and dynamic. A carefully-planned dashboard allows the leadership to identify and answer business challenges in real-time, develop plan of action based on insights, and inculcate innovation.
Proficient and capable dashboard designers and firms have taken the art of visualization of valuable indicators and insights through dashboards to the next level. They have devised specific guiding principles, dos and don’ts, and time-tested development routines to accomplish this. These guiding principles comprise 10 best practices, which can be segregated into 3 major implementation categories:
- Analyze your audience
- Contemplate display options
- Prompt application loading time
- Exploit eye-scanning patterns
- Restrict number of views & colors
- Let viewers filter data
- Ensure proper formatting
- Use Tooltips to reinforce story
- Eliminate redundancy
- Review the dashboard carefully
Let’s discuss the first 5 best practices for now.
Analyze your audience
A careful analysis and understanding of the business dashboard’s intended audience is the first important principle to consider before commencing the development of such a dashboard. For instance, a busy salesperson in need of quickly going through indicators, whereas senior management needing a deep-down review of quarterly sales results. This gives the developers a thorough idea of what the audience wants from a dashboard, what data they will visualize utilizing this, and let them know the audience’s technical capabilities in terms of data analysis, theme, issue, and business understanding.
Contemplate display options
The second principle to follow in designing a business dashboard is to research your users’ device and display preferences beforehand. Building a dashboard with desktop display options in mind when your audience prefers to use phones to view it could be a disaster. The designers should set the size of the dashboard properly—allowing the users to view it on a range of devices, by building in automatic sizing option for the dashboard to adopt to the dimensions of the browser window.
Prompt application loading time
Your audience and viewers are busy people who hate long waits. Therefore a stunningly designed dashboard would not get the right traction if it takes too much time to load. The dashboard author should facilitate prompt dashboard loading by deciding which filters to add in the dashboard and which ones to exclude. For instance, although filtering is useful in restricting the amount of data analyzed, it effects query performance. Some filters are quite slower than others as they load all of the data for a dimension instead of just what you want to keep. Knowing the Order of Operations is also beneficial in reducing the load times.
Exploit eye-scanning patterns
The dashboard authors should have a deep sense of the main purpose of the dashboard in mind when develop such a tool. They need to be aware of individuals’ eye tracking patterns—typically when most people look at a screen or content, they start scanning the upper left hand corner of the screen first by intuition—and make the best use of the screen space to display the most important content at the right place.
Restrict number of views & colors
The designers often get over enthusiastic during their application designs and try to stuff the dashboard with multiple relevant views. This is detrimental for the bigger picture. They must include not more than 2 to 3 views per dashboard and create more dashboards in case the scope creeps beyond the 2-3 views range. It is also crucial to ensure the content to be clearly visible to the viewer and to use colors correctly to facilitate analysis instead of cramming too many colors in the visuals, which creates a graphical overload for the viewers, slacken analysis (or may even prevent users to analyze data), and even blur the graphics.
Let viewers filter data
Allowing users to filter the data is another best practice to keep in mind while designing business dashboards. This added interactivity encourages data assessment and permits the users to have their most important view act as a filter for the other views in the dashboard. This helps in conducting side-by-side analysis, promotes involvement, and retains users’ interest.
Interested in learning more about the other best practices to aid in designing a robust business dashboard and knowing the most common mistakes to avoid in this process? You can download an editable PowerPoint on Business Dashboard Design here on the Flevy documents marketplace.
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The Value Chain concept, first described by Dr. Michael Porter in 1985, is a series of actions that a firm—in a specific industry—accomplishes to produce a valuable product or service for the market. The value chain notion visualizes the process view of an organization, perceiving a manufacturing or service organization as a system comprised of subsystems of inputs, transformation processes, and outputs.
Another way to define the Value Chain principle is, “transforming business inputs into outputs, thereby creating a value much better than the original cost of producing those outputs.” These inputs, processes, and outputs entail acquiring and utilizing resources—finances, workforce, materials, equipment, buildings, and land.
An industry Value Chain includes the suppliers that provide the inputs, creation of products by a firm, distribution value chains, till the products reach the customers. The way Value Chain activities are planned and executed determines the costs and profits.
Value chains consist of set of activities that products must undergo to add value to them. These activities can be classified into 2 groups:
- Primary Activities
- Secondary Activities
Primary activities in Porter’s Value Chain are associated with the production, sale, upkeep, and support of a product or service offering, including:
- Inbound Logistics
- Outbound Logistics
- Marketing and Sales
The secondary activities and processes in Porter’s Value Chain support the primary activities. For instance:
- Human resource management
- Technological development
Value Chain Analysis Benefits
The analysis of a Value Chain offers a number of benefits, including:
- Identification of bottlenecks and making rapid improvements
- Opportunities to fine-tune based on transforming marketplace and competition
- Bringing out the real needs of an organization
- Cost reduction
- Competitive differentiation
- Increased profitability and business success
- Increased efficiency
- Decreased waste
- Delivery of high-quality products at lower costs
- Retailers can monitor each action throughout the entire process from product creation to storage and distribution to customers.
Value Chain Analysis (VCA) Approach
Businesses seeking competitive advantage often turn to Value Chain models to identify opportunities for cost savings and differentiation in the production cycle. The Value Chain Analysis (VCA) process encompasses the following 3 steps:
- Activity Analysis
- Value Analysis
- Evaluation and Planning
The first step in Value Chain Analysis necessitates identification of activities that are essential to undertake in order to deliver product or service offerings. Key activities in this stage include:
- Listing the critical processes necessary to serve the customers—e.g., marketing, sales, order taking, distribution, and support—visually on a flowchart for better understanding.
- This should be done by involving the entire team to gather a rich response and to have their support on the decisions made afterwards.
- Listing the other important non-client facing processes—e.g., hiring individuals with skills critical for the organization, motivating and developing them, or choosing and utilizing technology to gain competitive advantage.
- This stage also entails gathering customers’ input on the organization’s product or service offerings and ways to continuously improve.
The second phase of the Value Chain Analysis necessitates identifying tasks required under each primary activity that create maximum value. This phase is characterized by:
- Ascertaining the key actions for each specific activity identified during the first phase.
- Thinking through the “value factors”— elements admired by the customers about the way each activity is executed.
- For example, for the order taking process, customers value quick response to their call, courteous behavior, correct order entry, prompt response to queries, and quick resolution of their issues.
- Citing the value factors next to each activity on the flowchart.
- Jotting down the key actions to be done or changes to be made to under each Value Factor.
Interested in learning more about the other phases of the Value Chain Analysis Approach? You can download an editable PowerPoint on Strategy Classics: Porter’s Value Chain here on the Flevy documents marketplace.
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As the last decisive step in customer service, a warehouse ensures cost effective distribution. Latest technological innovation has turned warehousing into a competitive advantage. It offers untapped potential for improvement. However, warehousing is a hugely neglected part of global supply chains. There is inconsistency in picking, packing and shipping orders, storing receipts, and managing inventory and logistics operations.
These and the following roadblocks in the way of smooth warehousing operations and Lean Management exist in every traditional warehouse:
- Lack of focus on acquiring technology to facilitate in improving efficiency and quality.
- Inability to utilize a structured approach to ascertain the reasons for poor performance.
- Lack of a big picture viewpoint pertaining to processes, costs, or external supply chain partnerships.
- Absence of a continuous improvement culture to achieve warehouse operations excellence.
- Lack of communication, organization, and proper training of resources.
These shortcomings call for implementing Lean Warehousing methodology to unlock improvement opportunities and savings in operational, efficiency, and maintenance related costs. First initiated by Toyota, the Lean Warehousing approach has a deep emphasis on eliminating 3 basic limitations: waste, variability, and inflexibility. The Lean Warehousing methodology focuses on the following 3 improvement areas:
- Cost Reduction
- Customer Quality
- Service Levels
The Lean Warehousing methodology concentrates on increasing productivity and reducing operating costs. This is achieved by:
- Cutting undue walking and searching
- Preventing needless replenishment, reworks, waiting times, and double handling
- Upgrading demand and capacity planning and manpower allocation
A Lean Warehouse seeks to take the customer quality to the next level by avoiding:
- Order deviations
- Picking errors
- Damaged goods
Improving service levels is at the center of a Lean Warehousing methodology, which involves:
- Reducing lead times
- Enhancing on-shelf availability
Lean Warehousing Transformation
Lean Warehousing Transformation entails streamlining operations to identify waste, know how to increase service levels, implement standardization and innovative ideas, and learn to evaluate and manage performance. Such transformation becomes a reality in an experiential learning environment and by developing organizational capabilities in 3 critical areas:
- Operating System
- Management Infrastructure
- Mindset and Behaviors
The organizational capability to configure and optimize all company physical assets and resources to create value and minimize losses. The focus areas under operating systems include eradicating variability, encouraging flexibility, and promoting end-to-end design.
The organizational capability to strengthen formal structures, processes, and systems necessary to manage the operating system to achieve business goals. The focus areas under Management Infrastructure are performance management, organizational design, capability building, and functional support process.
Mindset and Behaviors
The organizational capability to manage the way people think, feel, and act in the workplace individually as well as collectively. The target areas to focus on here include a compelling purpose, collaborative execution, up-to-date skills, drive to improve, and committed leadership.
Model Warehouse Implementation
Lean Warehousing Transformation necessitates developing a “Model Warehouse,” which presents facilities for supply chain people to practically experience state-of-the-art warehouse operations in a modern warehouse and shop-floor environment. The Model Warehouse incorporates newest technology and systems, and offers real-life conditions for building capabilities—i.e., optimization of storage, pick and pack, and dispatch processes. Newest technologies—e.g., Smart Glasses and HoloLenses—available at the facility help improve the performance of pickers significantly and execute multi-order picking efficiently.
Such a setting allows people to observe and analyze the performance of an exemplary warehouse and implement this knowledge at their own premises. Leading organizations organize a week-long rigorous knowledge sharing workshop—in an experiential learning environment of a Model Warehouse—for their people to have a hands-on experience to learn Lean Warehousing, actual picking, packing, root cause analysis, and performance management. The participants of the Model Warehouse Knowledge Sharing Workshop are excellent candidates for “change agents” to implement Lean Transformation.
Interested in learning more about Lean Warehousing, Model Warehouse Implementation, and Lean Warehousing Transformation? You can download an editable PowerPoint on Lean Warehousing Transformation here on the Flevy documents marketplace.
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Gordon Moore, Intel co-founder, observed that the number of transistors in a dense integrated circuit doubles about every two years. He projected that this rate of growth would continue for at least another decade.
His observation, termed the “Moore’s Law,” has correctly predicted the pace of innovation for several decades and guided strategic planning and research and development in the semiconductor industry. Moore’s law is based on observation and projection of historical trends.
In 2015, Gordon Moore foresaw that the rate of progress would reach saturation. In fact, semiconductor advancement has declined industry-wide since 2010, much lower than the pace predicted by Moore’s law. The doubling time and semi-conductor performance has changed, but it has not impacted the nature of the law much.
Although many people predict the demise of Moore’s law, exponential growth in computing power persists with the emergence of innovative technologies. Moore’s law is only part of the equation for effective Digital Transformation—there are other contributing factors including the role of leadership.
First Law of Digital Transformation
George Westerman—a senior lecturer at the MIT Sloan School of Management—proposes a new law, which states that, “Technology changes quickly, but organizations change much more slowly.” The law known as the “First Law of Digital Transformation” or “George’s Law” is a pretty straightforward observation, but is often ignored by the senior leadership. This is why Digital Transformation is considered more of a leadership—than technical—issue.
Just announcing an organization-wide Transformation program does not change the enterprise. According to George’s Law, successful Digital Transformation hinges on the abilities of senior leadership to effectively manage the so many contrasting mindsets of its workforce, identify and take care of the idiosyncrasies associated with these mindsets, interpret their desires, and focus attention on encouraging people to change.
Above all, the leadership should focus on converting Digital Transformation from a project to a critical capability. This can be done by shifting emphasis from making a limited investment to establishing a sustainable culture of Digital Innovation Factory that concentrates on 3 core elements:
- Provide People with a Clear and Compelling Vision
- Invest in Upgrading or Replacing Legacy Technology Infrastructure
- Change the Way the Organization Collaborates
Let’s now discuss the first 2 elements of the First Law of Digital Transformation.
Provide People with a Clear and Compelling Vision
Without a clear and compelling transformative vision, organizations cannot gather people to support the change agenda. People can be either change resisters, bystanders, or change enablers. However, most people typically tend to like maintaining the status quo, ignore change, or choose to openly or covertly engage in a battle against it.
For the employees to embrace change, leadership needs to make them understand what’s in it for them during the transition and the future organizational state. This necessitates the leaders to develop and share a compelling vision to help the people understand the rationale for change, make people visualize the positive outcomes they can achieve through Transformation, and what they can do to enable change. A compelling vision even urges the people to recommend methods to turn the vision into reality.
Invest in Upgrading or Replacing Legacy Technology Infrastructure
Problems and shortcomings in the legacy platforms is an important area to focus on during Digital Transformation. The legacy technology infrastructure, outdated systems, unorganized processes, and messy data are the main reasons for organizational lethargy. These issues hinder the availability of a unified view of the customer, implementing data analytics, and add to significant costs in the way of executing Digital Transformation.
Successful Digital Innovation necessitates the organizations to invest in streamlining the legacy systems and setting up new technology platforms that are able to enable digital and link the legacy systems. Fixing legacy platforms engenders leaner and faster business processes and helps in maintaining a steady momentum of Innovation.
Interested in learning more about the First Law of Digital Transformation? You can download an editable PowerPoint on First Law of Digital Transformation here on the Flevy documents marketplace.
Are you a Management Consultant?
Michael Eugene Porter—a Professor at the Institute for Strategy and Competitiveness, Harvard Business School—is widely acclaimed for his unmatched prowess in competitive strategy, strategic planning, global economic development, and the application of competitive principles and strategic approaches. Renowned as the father of modern day strategy, Dr. Porter is an author of 18 books and a number of articles.
His scholarly writings on management and competitiveness are ranked as the most influential pieces of work till date. Dr. Michael Porter is widely known for his Porter’s Five Forces framework, which is a useful tool to evaluate the competitiveness of an organization with respect to its rivals. Competition is part and parcel of every industry, and for the existence of an enterprise it is important to know its rivals and how their product / service offerings and marketing strategies affect the market. It is a common foundational framework used in Strategy Development.
The Five Forces framework emphasizes on 5 critical elements that determine the attractiveness of a business against its rivals in the industry:
- Threat of New Entrants
- Supplier Power
- Buyer Power
- Threat of Substitution
- Competitive Rivalry
Threat of New Entrants
This element examines the simplicity or complexity of an industry for the competitors to jump in. High-return industries are more appealing to new entrants. A market with easy access for new entrants poses greater risk—of market share diminishing—for established businesses. New entrants in an industry are able to dent the profitability of established players unless the incumbents retaliate strongly and make the entry of new firms challenging.
A serious threat to entry also relies on the existing barriers in the industry. If the market entry barriers are high and there is an expected sharp response from the entrenched competitors, the newcomers will think twice before entering the market. Another important factor for new entrants is the requirement for large capital for branding, advertising and creating product demand, which limits their entry in a niche market. Aspiring market entrants should thoroughly analyze and understand all the critical barriers to entry before entering an industry—such as economies of scale, product differentiation, capital investment, access to distribution channels, and government policies and regulations.
There 6 prevalent types of barriers to entry:
- Economics of scale
- Product differentiation
- Capital requirements
- Cost disadvantages (independent of size)
- Access to distribution channels
- Government / regulatory policy
Suppliers are a powerful force that influences the competitiveness of an industry. They create immense pressure on market players by slashing the quality of goods and by increasing prices, thereby squeezing the margins of manufacturers. For instance, by jacking up the price of soft drink concentrate, suppliers erode profitability of bottling companies. The bottlers, in turn, don’t have much leverage to raise their own prices because of intense competition from fruit drinks, powdered mixes, and other beverages.
The power of a supplier group amplifies if it’s dominated by a few firm, has differentiated and unique products; and has built up switching costs that buyers face when changing suppliers, for making investments in specialized equipment, or in learning how to operate a supplier’s equipment. The supplier group also thrives when there isn’t much competition for sale to the industry, or when the industry is not its major customer, as this saves the supplier from selling at a bargain and investing in R&D and lobbying for the industry.
Buyer or customer groups also impact the competitiveness of an industry landscape by exercising their power to bring the prices down, insist on higher quality, or demand more service. A buyer group is powerful if it buys in large volumes in an industry characterized by heavy fixed costs and buys undifferentiated or standard products. Buyers have the ability to put one supplier against another and find alternative suppliers.
The power of a buyer group increases if it’s a low profit business—providing it the reason to be price sensitive and insist on lower purchasing costs—, if the industry’s product is insignificant to the quality of the buyers’ products or services, or if the product that suppliers provide does not save much for the buyer. Buyers can also use the threat of self-manufacturing as a bargaining lever against the suppliers.
Threat of Substitution
Substitute product or service offerings restrict the capacity of an industry by placing an upper limit on prices it can charge. The industry’s earnings and profits will continue to suffer lest it can enhance the quality of products or create differentiation through, for instance, aggressive marketing.
If substitute products offer more competitive price-performance trade-off, then the industry’s profitability gets limited or goes down. For instance, the erosion of profits for the sugar industry due to substitution of sugar with commercialized high-fructose corn syrup.
Internal Rivalry, existing at the center of Porter’s Five Forces framework, represents the competition between existing players often leads to rivals using manipulative tactics like price competition, new product launch, and advertising wars. Companies can use strategic shifts to improve their competitive position—e.g., raising buyers’ switching costs, increasing differentiation, and focusing on low fixed costs areas.
Interested in learning more about the other critical elements of the Porter’s Five Forces and their role in in determining the state of competition and profit potential of an industry? You can download an editable PowerPoint on Porter’s Five Forces here on the Flevy documents marketplace.