The Scales of Governance: Weighing options, arguments, evidence & consequences

 

Evaluation – Part 1

We use the term ‘on balance’ as a shorthand way of saying that we have come to a decision or choice after considering the power, influence, or ‘weight’ of both sides of a question or issue. This invokes metaphoric reference to a set of balance scales – as in the ‘scales of justice’ (see header image).

Evaluation skills, sometimes described as good judgment, are fundamental to good governance. The EDM (Evaluate, Direct, Monitor) Governance Model acknowledges this. This article is the first in a short series looking at some aspects of evaluation in the work of non-profit directors and managers.

Weighing options

Regrettably, most non-profit governance and management decisions involve more than two options or alternatives. Simple choices between good and bad options are rare. If the issues were that simple, then they could probably be resolved by reference to a checklist or filter system, without having to include them on a board agenda. Often enough in governance deliberations, we can also be faced with a choice between ‘least worst’ options rather than ‘best case’ scenarios.

Debates over complex public policy issues inevitably involve more than two perspectives, unless they are seen through the lens of a polarising media story or a ‘school debating club’ approach. These perspectives contrive to restrict debate to black and white positions, with ‘government’ and ‘opposition’ sides taking a stance for or against a given claim or contention.

Even the choice between action and inaction usually involves additional sub-options, such as whether to act one way or another. For inaction, you could choose to leave the matter off the agenda, or include it, but recommend that the situation simply be monitored for significant developments.

We usually employ arguments for and against each of the options to develop a collective view on which of the options is the most robust, and therefore likely to offer the most satisfactory response to the situation. The criteria we employ to make judgments regarding our option preferences, are discussed further below under ‘weighing evidence’.

Weighing arguments

Deliberative processes in non-profit and for-purpose settings are much less about winning an argument than they are about negotiating best possible outcomes for key stakeholders.

Simply counting the number of arguments for or against the proposal would not pay sufficient regard to the relative value of some criteria compared with others. That’s where recognition of the evidence called upon to support each argument comes into play.

The importance of employing evidence-based decision-making has been formally recognised by the International Standards Organisation with the adoption of ISO9000.

Weighing evidence

Identification of arguments for or against a particular proposal or position, and mapping these so they can be fully examined is a good start in weighing the arguments, but when we acknowledge that not all arguments are supported by the same standard of evidence, we recognise that we need to attach some form of importance ranking or weight to the criteria we apply to our decision making. This would tilt the scales in recognition of our values, strategic priorities, and commitment to evidence-informed decision-making.

When we establish a tender process or initiate CEO recruitment and selection, we are happy to identify criteria for use by a tender committee or selection panel. This helps to ensure that an objective decision can be reached on the preferred candidate. Skill in crafting such criteria exists in most boards and senior management teams, however, the establishment of evaluation criteria for other kinds of decisions is not always addressed. Taking the time to agree on the evaluation criteria, and their relative importance, will be rewarded when the time comes to make a decision.

For complex and high-value decisions, I have found argument maps to be a helpful aid to the deliberative process. There are numerous desktop and online mapping systems available, but I have preferred Rationale* and Bcisive* for many years. The capacity to unpack the debate, capture the supportive and opposing arguments, identify the evidence underpinning those arguments, and the sources of that evidence, is particularly helpful to a board seeking to weight or rank the arguments according to the standard of evidence they rest upon.

*No referral fees or commission arrangements apply.

When assessing whether a board sought access to relevant data and analyses to support their decisions, courts will seek to confirm that directors informed themselves to a level expected by a reasonable person before making their decision. Mere access to the relevant data would not be sufficient of course. The extent to which probing questions were asked and answered also enters into consideration.

Weighing consequences

Certainly, when we assess the likelihood and severity of adverse consequences from action (or inaction) on a given issue, we are weighing the consequences. This only considers the question of what could go wrong of course, and a balanced approach to deliberation would also look at the value proposition, and ‘benefit dividend’ for our client, member, or community. The sweet spot which (at minimum) balances benefits, costs, and risks, should be identified in board decision making, with a preference for proposals in which benefits outweigh costs and risks.

Higher-order governance

The evaluative skills involved in weighing options, arguments, evidence, and consequences are examples of higher-order critical thinking skills. This aspect of evaluation will be explored further in Part 2 of this series.

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Four Customer Experience Competencies

 

A single bad experience can cost company money?

In the case of United Airlines, one bad experience became a YouTube viral video that damaged its reputation for months and resulted in a drop in their share price.

The fact is that managing customer experiences isn’t something to leave to chance. Great companies design customer experiences.

Some reports indicate that as much as 53% of consumers report stop spending at fast-food restaurants or rental car agencies as a result of a bad experience.

The Customer Choice

Customers today have more choice than ever. If you onto Amazon and type in any product you will find a plethora of alternatives.

The point is that customers don’t have to remain loyal, don’t have to choose your company.

Customers can easily see reviews of good and bad experiences and they trust these more than they do your marketing.

The Customer Journey

Today’s customer buying journey spans buying, owning and advocating. It is progressive so that if brands do the right thing in the buy and own stage, they earn customer advocacy. This is important because when marketers improve the entire customer experience across all three phases, their marketing results amplify and improve.

The connected economy continues its path of creative destruction and as a result, changing the nature of competition itself. Customer experience is in now the battleground for customers. Why? Well, hyper-competition has reduced traditional product and service advantages. Now customers have more choice than ever before. Customers also have easy access to those choices through the internet. This means that there is ubiquitous access to pricing and product information, and so consumers have little reason to remain loyal to a particular brand.

And for your customers to like you, you should know them very well to create and deliver personalised experiences that will entice their loyalty. But gaining this in-depth knowledge about customers isn’t something that just happens. It’s about collecting a lot of customers’ data and bring out valuable insights from that data with speed and precision.

The Four Customer Experience Competencies Infographic

What does it actually look like to take your customer experience capabilities to the next level?  Many organisations say they focus on their customer “experience” but the reality is that defining the stages of customer experiences from the customer’s point of view is hard. One reason is that many organisations do not coordinate and collaborate across the customer experience journey. As a result, the operating areas do their own thing, driven by their internal tasks and agenda and scorecard. A lot of work is resources are committed within each area of the company. However, these don’t add up from the customers’ experience to deliver a unified experience.

Organisations need to have a framework and teams that have a clearly defined customer experience vision and integrate culture, employees, marketing and operations to deliver it. The four customer experience competencies infographic nicely illustrates the competencies that an organisation needs to develop to succeed.

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Managing Organizational Change: Change Management Models

 

The hardest part of any change is always the people. Computers don’t care if they’re running the new software. Apps don’t mind new code. Assembly lines have no sentimental longings when they’ve switched around and reconfigured. Understanding various change management models can provide professionals the opportunity to assist their organizations with change management.

For business leaders implementing effective change management, the people are also usually the biggest challenge. Although we’re fond of novelty, we humans aren’t big fans of fundamental shifts in our everyday lives. Our routines give us comfort, confidence, and consistency, and significant changes threaten those things.

That’s why change management is much more about the people than the changing technology or processes. Without laying the groundwork and preparing the organization for these shifts, it won’t matter how much more efficient or transformative things could be because change doesn’t work without buy-in.

Different Change Management Models

“Change management” is a pretty broad term applied to all sorts of things. But they tend to fall into a few categories.

Crisis-driven change

Subsequently, the driver for change isn’t always intentional. Sometimes external factors make that decision for you. Our planet is still reeling from a monumental, unplanned shift in the wake of COVID-19, and there is no shortage of upheavals thanks to natural disasters, political turmoil, and economic tumult.

And while the impetus for these changes might be unwelcome, the outcomes often have some upsides. But accepting these changes and adapting on the fly challenges even the most flexible organizations.

Corrective change

Accidents happen, mistakes get made, and the best-laid plans don’t always pan out. However, when things break, a significant change may be the only remedy.

This type of change comes on the heels of failure, disappointment, or frustration, whether a botched product release, revenue drop or an unpleasant scandal. Moreover, the shortcomings and flaws are laid bare, and now it’s time to regroup. No one wanted this change, but it’s now apparent and urgent.

Transformational change

To achieve its goals, sometimes businesses need to reshuffle the deck and implement new organizational structures. Therefore, these are the extensive reorganizations that align teams based on business functions or verticals or geography in the name of efficiency and superior performance.

These changes are often accompanied by a personnel change as well. Be it a restructuring accompanied by layoffs or a hiring spree thanks to rapid growth. Consequently, the organizational chart looks a lot different when the dust settles. Familiar faces may now reside in new departments or gone altogether while new colleagues appear.

Organization-wide change

Organization-wide change is the Big Kahuna of change management. Fundamental, seismic shifts that shake the foundations and unsettle the ground workers thought were immovable.

Furthermore, these changes impact every employee, sparked by a significant overhaul of leadership, introducing disruptive new technologies, adhering to new policies or regulations, or experiencing mergers and acquisitions.

Change Management Strategies

There are lots of takes on change management strategies and the implementation of change management models, each with its adherents and critics. But what’s most important is realizing you need a plan and plotting one out. Significant changes are rarely smooth, but some intentionality and planning can go a long way to minimizing the turmoil.

Regardless of the exact path chosen, change management strategies should always include these basics.

A vision

Employees and external stakeholders must know the overall end goal. That vision should articulate what the new status quo would mean for the business and how it impacts customers and colleagues daily. The below questions typically get asked:

• What’s better, faster, or cheaper?
• If we implement the changes, will it improve things?
• How will the new landscape look?

A well-articulated picture of the end state can alleviate the anxiety and uncertainty that accompanies any significant change. If individuals are excited about the vision, their resistance to the change diminishes.

Measurability

Defining success and how to track it goes hand-in-hand with the vision. It’s unfair to give folks marching orders when they don’t know how long they’ll be marching or when they’ll know it’s time to stop.

The organization needs visibility into how things are progressing and the key milestones signifying progress and achievement. Broadcasting the current status and accomplishments to date keeps folks informed and motivated. Objectives should be as concrete and specific as possible.

Ownership and accountability

Change management and ambiguity aren’t compatible for such high-profile undertakings. Who’s on the hook for what must be established early on and communicated widely.

This clarity minimizes confusion regarding who should do what while also spelling out the chain of command on key decisions. With these clear expectations for follow-through, reporting, and responsibility, there’s less chance of finger-pointing and false assumptions that someone else was taking care of critical items.

Ongoing communication

Significant changes take time, and organizations can’t go quiet at any phase of the process. From kick-off to a conclusion, everyone impacted by the change or contributing to its execution must remain in the loop regarding progress, status, and any issues or delays that arise.

Not only does it helps ensure that the project doesn’t lose momentum or stall, but it also keeps it top of mind for coworkers who are immersed in the change process daily. Ongoing, regular updates make everyone feel informed and included, as this change will eventually impact them all.

A roadmap

Timelines, deliverables, dependencies, milestones, and parallel track are elements of a good change management plan and excellent ingredients for a roadmap capturing and tracking it all.

While product roadmaps are ideally based on themes and leave out much of the implementation specifics, a change management roadmap captures as many details as possible to ensure no task goes undone. It encompasses the entirety of the to-do list and spells out the order of operations and handoffs to keep on schedule and maintain momentum.

Change management roadmaps also cover the “softer” side of the change, including consensus-building, education, and communication plans. It’s not just about getting everything done on time but also keeping all parties informed and engaged throughout the entire timeline.

Change Management Models

Organizations commencing a significant change management initiative don’t need to start from scratch when designing their playbook and plans. Over the years, numerous models have emerged, built on the successes (and failures) of change management experiences in different industries.

These models include best practices, processes, and checklists to guide organizations through these transitions, offering a starting point covering the basics and common pitfalls businesses face. Some noteworthy change management models include:

Lewin’s change management model

Since the 1950s, this model divvies up change management into three steps:

• Unfreeze: Preparation for and socialization of the upcoming change.
• Change: The actual implementation of the change.
• Refreeze: Ensuring that the change sticks for good.

Kübler-Ross change curve

Using the “stages of grief” for inspiration, this model focuses on the social-emotional components of change management:

• Denial: Everyone’s default opening position.
• Anger: Unhappiness with change forced upon you.
• Bargaining: Resistant colleagues try to negotiate a compromise.
• Depression: Unhappiness leads to depression when they can’t stop the momentum.
• Acceptance: When they realize there’s no other option.

McKinsey’s 7-S model

The OG consultants use some alliteration to lay out their plan for managing change:

• Strategy
• Structure
• Systems
• Shared Values
• Style
• Staff
• Skills

Satir change model

Another model focused on feelings to help prepare for change:

• Late status quo
• Resistance
• Chaos
• Integration
• New status quo

Kotter’s Theory

Harvard Business School professor John P. Kotter’s eight-step program is a top-down approach:

• Create a sense of urgency
• Build the change team
• Form a strategic vision
• Communicate the vision
• Remove barriers to change
• Focus on short-term wins
• Maintain momentum
• Institute change

The Four Principles of Change Management

As you can see, there’s no single “right way” to manage change, but there are plenty of things to worry about. When it’s all boiled down, what remains true is that all successful changes have four core elements:

• Understand change
• Plan change
• Implement change
• Communicate change

None of these things are optional, although organizations often skip understanding—and sometimes even product planning—because they’re in a hurry to finish. While this may yield some initial success, those shortcuts will inevitably haunt the organization in the future.

Staff must be prepared for the change and comprehend the rationale and context for implementing it for them to support it. Finally, creating a plan that bakes these steps in and mandates frequent, open communication throughout the process is the best way to make that happen.

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Linking Sustainability to Corporate Strategy

 

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Supply Chain Management

 

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Supply Chain Management Definition

‍In today's fast-paced business environment, effective supply chain management is more crucial than ever. Companies must navigate various challenges, such as globalization, increased customer expectations, and rapidly changing market conditions, to ensure their products reach the right place at the right time. It's no longer enough to simply have a streamlined production process; organizations need to seamlessly coordinate the flow of goods, information, and finances across the entire supply chain.

With the help of advanced technologies and data analytics, companies can optimize their supply chain management strategies, enhance operational efficiency, and gain a competitive edge. From procurement and logistics to inventory management and demand forecasting, every aspect of the supply chain requires careful planning and execution.

What is Supply Chain Management?

Supply chain management (SCM) is the coordination and management of all activities involved in the production and delivery of goods or services, from the initial procurement of raw materials to the final distribution to end customers. It encompasses the planning, sourcing, production, logistics, and reverse logistics processes, with the ultimate goal of optimizing efficiency, reducing costs, and maximizing customer satisfaction.

In a globalized economy, supply chains have become increasingly complex, with multiple stakeholders, geographically dispersed suppliers, and diverse customer demands. Effective supply chain management requires a holistic approach that considers the entire end-to-end process, including both internal and external stakeholders.

Key Components of Supply Chain Management

The success of supply chain management relies on several key components that work together seamlessly to ensure the efficient flow of goods and information. Let's explore these components in detail:

Procurement

Procurement involves sourcing and acquiring the necessary raw materials, components, or finished products from suppliers. It includes activities such as supplier selection, negotiation, contract management, and supplier relationship management. Effective procurement practices focus on securing high-quality goods at competitive prices, while also considering factors such as supplier reliability, ethical sourcing, and sustainability.

Inventory Management

Inventory management involves overseeing the levels of raw materials, work-in-progress, and finished goods to ensure optimal stock levels. It aims to strike a balance between avoiding stockouts and minimizing carrying costs. Effective inventory management requires accurate demand forecasting, real-time visibility of inventory levels, and efficient inventory replenishment processes.

Logistics

Logistics refers to the movement, storage, and transportation of goods from suppliers to customers. It encompasses activities such as warehousing, order processing, transportation planning, and last-mile delivery. Efficient logistics management focuses on reducing transportation costs, optimizing delivery routes, and ensuring timely and accurate order fulfillment.

Demand Planning and Forecasting

Demand planning and forecasting involve predicting customer demand for products or services. It enables companies to align their production and inventory levels with anticipated demand, minimizing the risk of stockouts or excess inventory. Accurate demand forecasting relies on historical data, market trends, customer insights, and collaboration with sales and marketing teams.

Supplier Relationship Management

Supplier relationship management involves building and maintaining strong partnerships with suppliers. It focuses on fostering open communication, collaboration, and mutual trust. Effective supplier relationship management helps companies secure reliable and cost-effective supplies, gain access to innovative products or technologies, and mitigate risks associated with supplier performance.

Supply Chain Management Process

The supply chain management process involves a series of interconnected activities that ensure the smooth flow of goods and information. While specific processes may vary depending on the industry and company, the following steps provide a general framework for effective supply chain management:

Challenges in Supply Chain Management

While supply chain management offers numerous benefits, it also presents several challenges that companies must address to ensure success.

Globalization

Global supply chains introduce complexities such as longer lead times, diverse cultural norms, and regulatory differences. Managing suppliers and logistics across multiple countries requires careful coordination, cultural understanding, and compliance with international trade regulations.

Demand Volatility

Fluctuating customer demand, seasonality, and market trends pose challenges in supply chain planning and forecasting. Companies need to invest in accurate demand forecasting methodologies, real-time market intelligence, and flexible production and inventory management strategies to respond effectively to changing demand patterns.

Supply Chain Visibility

Lack of end-to-end visibility into the supply chain can hinder decision-making, increase lead times, and result in inefficiencies. Companies need to leverage technology solutions, such as supply chain analytics and real-time tracking systems, to gain visibility into inventory levels, transportation status, and supplier performance.

Risk Management

Supply chains are vulnerable to various risks, including natural disasters, geopolitical events, and supplier disruptions. Companies must develop robust risk management strategies, diversify suppliers, and establish contingency plans to mitigate the impact of unforeseen events on their supply chains.

Complexity and Integration

Supply chains involve multiple stakeholders, processes, and systems that need to work together seamlessly. Managing the complexity and ensuring integration across various functions, such as procurement, production, logistics, and sales, requires effective coordination, standardized processes, and the use of integrated technology platforms.

Technology and Tools for Effective Supply Chain Management

Advancements in technology have revolutionized supply chain management, enabling companies to overcome traditional limitations and achieve new levels of efficiency. Here are some key technologies and tools that are transforming supply chain management:

Supply Chain Analytics

Supply chain analytics involves the collection, analysis, and interpretation of supply chain data to derive meaningful insights. By leveraging predictive and prescriptive analytics, companies can make data-driven decisions, optimize processes, and identify areas for improvement.

Internet of Things (IoT)

The IoT involves connecting physical devices, sensors, and machines to the internet, enabling real-time data collection and communication. In supply chain management, IoT devices can track inventory levels, monitor transportation conditions, and provide visibility into the entire supply chain, improving efficiency and reducing costs.

Blockchain

Blockchain technology provides a decentralized and transparent framework for recording and verifying transactions. Within supply chain management, it has the potential to improve traceability, verify product authenticity, and streamline operations like supplier payments and contract management.

Robotic Process Automation (RPA)

RPA involves automating tasks that are repetitive and rule-based by employing software robots. In supply chain management, RPA has the capacity to optimize order processing, automate data entry, and enhance accuracy, allowing human resources to concentrate on more strategic activities.

Cloud Computing

Cloud computing enables companies to store, access, and analyze supply chain data in a secure and scalable manner. It facilitates collaboration, provides real-time visibility, and allows for seamless integration with supply chain partners.

Conclusion

Effective supply chain management is vital for companies in the contemporary business landscape characterized by globalization and rapid changes. It serves as a critical success factor, encompassing a range of strategic processes and activities that enable organizations to navigate the complexities of a dynamic and interconnected world.

In the globalized supply chain landscape, involving various stakeholders like suppliers, manufacturers, distributors, and retailers, Godamwale's expertise ensures businesses confidently navigate complex dynamics. This proficiency in inventory management, order fulfillment, and strategic supplier relationships optimizes the flow of goods, information, and finances, enhancing operational efficiency, cutting costs, and boosting customer satisfaction.

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It is important to know the SCM concept because many people confuse supply chain with logistics. So they reduce the relevance and scope of supply chain. How we are showing the concept of supply chain is quite broad, and that means supply chain is without any doubt one of the main pillars to focus on turnaround projects. So first at all, let us review the SCM concept.

According to APICS body of knowledge, they distinguish between:

• Production & Inventory Management (CPIM): Operations performed inside the four walls of the organization (demand planning, procurement, supplier management, material requirement planning, capacity planning, S&OP planning, master scheduling, performance management, quality control, continuous improvement)
• Supply Chain Management (CSCMP): End-to-end supply chain from the first customer to end customers (CRM, SRM, international trade, logistics, IT SCM).

The rest of the main supply chain organizations offer a much broader definition of supply chain.

CSCMP defines SCM as the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities (demand planning, procurement & supply management, manufacturing & service operations, transportation management, inventory management, warehouse management, order fulfillment & customer relationship).

Scmi says that SCM is the integration of key business processes from end-user through original suppliers that provides products, services, and information that add value for customers and other stakeholders (CRM, SRM, customer service management, demand management, order fulfillment, manufacturing flow management, product development and commercialization, return management).

In order to understand the difference between logistics and SCM we are showing the logistics definition provided by CSCMP. Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverses flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements.

Alfred J Battaglia shows us a very interesting view of the evolution of SCM concept

Supply Chain Management Canvas

The Business Model Canvas is a great contribution to reduce the complexity of designing successful business models. Implementing the Supply Chain Management Canvas can contribute to simplifying the process to build Supply Chain models that create a competitive advantage for our companies.

The benefits of a canvas approach

Based on the official site of the Business Model Canvas, we can point out four main objectives for the canvas approach:

1. Describe our business model in a limited and manageable quantity of basic building boxes, which allow us to maintain focus on the key functions/activities/processes/resources.
2. Define a logic pre-structure of the canvas. This is essential because business or supply chain models depend heavily on the alignment and tradeoffs between those basic building boxes. Usually, the canvas framework is used for a strategic purpose. It is important to realize that strategy is about “choices,” so the choices are what will make our model unique. Some examples of supply chain choices are make-to-stock vs. make-to-order, efficiency vs. responsiveness, centralized vs. decentralized stocks, etc.
3. Help to describe, map, design, discuss, challenge, choose, improve, innovate… This visual chart allows us to better visualize the “As Is” and “As Should Be” scenarios. Moreover, it is a great visual communication tool to discuss new ideas and align different teams/people.
4. Make the focus on the Key important things. The one-page “limitation” helps to maintain focus and avoid getting lost in many building boxes and initiatives.

Having the Business Model Canvas is a prerequisite

Even if your objective is the Supply Chain Canvas, be aware that we need the input of the Business Model Canvas before. The Supply Chain Canvas must be driven by the company strategy and business model. Thus, using the Business Model Canvas as an input for the Supply Chain Canvas is the only way to guarantee the necessary alignment between the firm’s business model and the supply chain model.

Furthermore, I would suggest creating a supply chain complementary version from the CEO Business Model Canvas. That complementary version should be focused on the Supply Chain function in order to move from the company scope to more specific Supply Chain details. For instance, in that complementary version we are using key supply chain partners rather than the company partners, or key supply chain activities rather than the company activities, or the supply chain value proposition rather than the company one, and so on.

The Supply Chain Canvas

Once that we have the Business Model canvas from the CEO, and we have performed a complementary version focused on the supply chain function, we are ready for the more specific and customized Supply Chain Canvas.

My proposal for the Supply Chain Canvas is fifteen building boxes. This number is a consequence of the complexity of the supply chain function, and likely the maximum number of building boxes that we should have in the canvas tool. The operations of the model are placed on the top ten building blocks which follow the sequence of the value chain (design, plan, source & make, deliver, and customer.) The bottom five building boxes are focused on the supply chain financial impact in the Balance Sheet and the Profit & Loss Account. Finally, the light gray background building blocks are more focused on efficiencies, and the light blue more focused on customer value creation.

This one-page framework will support supply chain departments to identify and deliver higher operational and financial performance. However, the success of the implementation of the tool will likely depend on “the mind of the supply chain strategist.” I mean the supply chain team skill to identify the very few most critical issues, frame the questions properly, and make the right supply chain choices to uncover the full potential of their supply chain.

Warehouse Management Canvas

Warehouse costs are one of the largest fulfillment costs, and Distribution Centers are a key supply chain process for satisfying the rising logistics needs and expectations of customers. However, it is not easy for supply chain professionals to avoid getting distracted with small warehouse issues rather than focus on what really matters. The good news is that the business canvas is one of the best management tools to help warehouse professionals to see the big picture, apply a holistic warehouse optimization approach, and identify high potential improvement initiatives or programs.

Aligning the warehouse management canvas with the supply chain management canvas

Supply chain is so complex and involves many activities. Execution is essential in supply chain to materialize the potential operational and financial improvements. These two detailed characteristics suggest that at least we need three canvas level in supply chain:

1. The business model canvas
2. The supply chain management canvas (see the post Supply Chain Management Canvas)
3. A more detailed level for the main supply chain processes, i.e., the Warehouse Management Canvas

These three levels need to be aligned and consistent with each other. This alignment is not obvious because the building boxes for the three levels of the canvas are not the same. When we are talking about alignment, I would suggest focusing on Customer blocks (last column in the three canvas levels – see the image below) and the financial performance (last row in the three canvas levels – see the image below).

The Warehouse Canvas

We continue using the idea of fifteen building boxes from the original Supply Chain Management Canvas (see the post Supply Chain Management Canvas) as the maximum number of practical building boxes. However, we are using a simpler and more tactical and operational model on the top, based on the well-known People, Process, and Technology Framework.

Learning to See in the Warehouse

Improving the operational and financial performance of a warehouse is never an accident. It is the consequence of being able to see the big picture of the warehouse and the high-impact potential opportunities. So, let’s review where we are finding some of the most key improvement opportunities when we are analyzing the performance of warehouses:

• Layout: In many warehouses, there is the assumption that the initial layout design is the optimum, even if it was the optimum design at that time, customer needs, and volumes change with time, which means that layout should be reviewed periodically.
• Planning: Any issue or lack of planning will automatically transfer to the tactical and operational warehouse processes. I always suggest checking overtime because overtime is a good indicator of the efficiency of the planning process.
• WMS: Many WMS and ERP implementations are performed without doing enough process mapping work and a detailed business requirement study for all the processes. The consequence is fast but sub-optimized implementations. So, those systems will require complementary Excel spreadsheets and manual processes that will reduce productivity.
• Storage Solution and MHE: Conventional racks are not the only storage solution, although it is the most common and flexible. Customizing different storage solutions and MHEs according to different types of items and volumes will increase productivity and reduce costs.
• Processes: If we do not map processes, it is difficult to identify issues at the activity or task level. All companies are wondering how to improve productivity, and process mapping is one of the key steps in the productivity improvement journey.
• Operational flow: The traditional approach to warehouse processes is a silo approach, which looks at optimizing activities. A warehouse holistic optimization approach based on improving flow and productivity can revitalize warehouses increasing flow +40% and productivity +20%.
• Performance management: To properly perform, businesses need to be able to answer positively two key questions: Do we have a performance hierarchy of KPIs to be able not only to understand the overall health of the warehouse but also the diagnostic and root cause KPIs? Do you have a process to identify why some KPIs are not good enough, and which actions need to be taken?
• Quality: Are you able to track where are quality issues coming to? Most of the quality issues are not people’s problems; they are process problems. Nevertheless, it is important to identify who was the operator that makes a mistake to understand why (lack of training, a badly designed process, etc.) and promote a culture of quality and accountability.
• Inventory: The inventory level and the inventory control process are two of the best indicators to determine how well the warehouse is running.

How to make the Warehouse Management Canvas work

The warehouse management canvas will help warehouse professionals build and accelerate real warehouse transformational plans, which will deliver huge value for their companies and customers. However, the success of any project is likely based on the sustainability of performance improvements.

The warehouse canvas is built on the sustainability of the improvements. Thus, we have five building boxes that will support performance sustainability: planning (less operational issues), technology (simple, robust, and repeatable processes), operational flow (complexity reduction), people (accountability), and performance management (KPIs with action plans.)

It is important to highlight that even the warehouse canvas is built on the sustainability of the improvements. The tool does not substitute the need for a remarkable Warehouse Manager with the skill of change management and making things sustainable and happen.

Supply Chain, Manufacturing and Marketing/Sales Strategies Alignment

According to SCOR Reference Model there are three main supply chains or we could say three main supply chain strategies (make-to-stock, make-to-order, and engineer-to-order). As we are showing those strategies must be aligned with manufacturing and marketing/sales strategy.

Despite SCOR mention three strategies, we could say that in reality there are two main supply chains and/or manufacturing strategies because engineer-to-order could be considered as a sub-classification of make-to-order.

The two main supply chain and/or manufacturing strategies

• Make-to-stock (MTS): We manufacture and stock the goods. The goods are stocked until we receive sales for those products. The main advantage of this strategy is that allowing us to short delivery times to customers because finish goods are already produced (if our forecast is correct). On the other hand, we are building stock, and costs associated with stock (cost of capital, inventory damages, insurance of inventory, inventory obsolescence, and inventory shrinkage). Perhaps the main handicap of this strategy is that we need to forecast sales, and as it is well known to perform a good forecast is complex, and be 100% right with the forecast is “almost impossible”. The make-to-stock strategy fit very well with the traditional economies of scale approach because we can optimize production batches supporting extra production with finish goods warehouses.
• Make-to-order (MTO): We start manufacturing after receiving sales orders, and just covert the sales orders (we are not stocking). The main advantage is that finish goods stock is not built, so the cost associates with that stock are not going to flourish. On the other hand, delivery lead times are getting longer to compare with firm that stock product. However, this approach makes more agile and flexible to these firms, if we are talking about customized products. This make-to-order strategy fits with lean approaches well or even many customized products that are not able to be planned.

Now we are showing an image that shows and summarizes the relation between supply chain, manufacturing and marketing/sales strategies. We should not forget that any functional strategy not well aligned with the rest of the functional strategies could be created an inconsistent business model that could make fail the firm in the market.

Supply Chain and Manufacturing Strategies: Aligning functional strategies (adapted from Martin Christopher)

The two other supply chains and manufacturing strategies related to make-to-order

• Engineer-to order: Customers’ orders will require of engineering specific designs. So inventory “cannot be built” until the sales order is not received, and the design needs are known.
• Assemble-to-order: Compare with make-to-order the difference is that rather than make we assemble.

The utility of this framework for turnaround processes

Reviewing if there is any inconsistent in the main functional strategies, because those inconsistencies could be one of the causes of current business issues.

• Make-to-order strategy could be a lean solution to optimize total costs rather than silos costs.

• Make-to-order strategy could be a new approach to revitalize company strategy.

• Rethinking about our core competencies.

How Important Must the SCM Function Be?

The Value Chain tool (Michael Porter 1985) shows us the main activities of the firm. Those activities are separate in primary and support activities. If we analyze the primary activities, we can get the conclusion that primary activities are Demand Activities (Marketing, Sales and Service) and Supply Activities (Inbound Logistics, Operations and Outbound Logistics). We could say that Demand activities are CRM (Customer Relationship Management) processes and Supply activities are SCM (Supply Chain Management) processes. In fact, many IT companies define their ERP modules in that way.

Unfortunately, there are still many people who think about SCM as just day-by-day back office tasks (storage, import, purchase, and so on) or confuse SCM with Logistics. Indeed, SCM is one of the two main strategic activities of the company. SCM is a very strategic function because is the nucleus activity of the firm. I said nucleus activity because it is the link with all the areas of the firm and the external link with customers and suppliers.

You can see below an adapted value chain (engineering has been added because is important for manufacturing firms, and infrastructure has been removed) where you can see the important value untapped in many firms that SCM is able to deploy (blue background). Some of those activities are cross functional and responsibility must be shared with other departments. In red letters we can find SCM core functions that are shared with other areas of the company. For instance, cost improvements or cash to cash cycle time are financial ideas but the implementation use to happen in SCM. Other example could be change management: because an important proportion of the staff is SCM related, the materialization of change initiatives rely on SCM many times.

SCM Activities in the Value Chain

Thus, having a robust SCM function is a key cornerstone to compete nowadays. CEOs must realize of the full potential of having an important and integrated SCM function rather than breaking the SCM ideas in several departments with the risk of losing the  power of integrated internal and external processes.

So can anyone say that SCM is less important than any other function?

Tax Efficient Supply Chain Management: TESCM Strategies

There are financial tools like Economic Value Added (EVA) which shows us tax management as one of the key business levers. Tax Efficient Supply Chain Management (TESCM) shows us the potential of using tax and supply chain management in an integrated way. The result of that approach is getting important effective tax saving (effective tax is the tax after tax exemptions, tax refunds and so on) AND improving supply chain efficiencies at the same time. So let’s go to review some of the main TESCM strategies that can bring massive savings to our companies and support turnaround processes:

Centralized assets and operations in low-tax countries/states by putting in place a regional/global Tax Efficient Supply Chain Management (TESCM) strategy

In Europe for instance, Ireland and Switzerland used to be the preferred locations. Those countries to attract global or Pan-European headquarters are offering important corporate tax savings at the same time that offer access to the huge European Union market (EU has free movement of capitals, people and products). Thus, we have well-known companies like Unilever, Kraft Foods or Johnson Wax that have moved their regional headquarters to Switzerland. Those are small countries which tax strategy is attracting large global or regional headquarters. There are other benefits like English language for Anglo-Saxon firms in Ireland, or high life quality standard in Switzerland which could be an incentive to attract and retain the best staff. Moreover, Switzerland is in the center of Europe and connected by plane in less than three hours with any European country what can reduce traveling expenses and improve productivity.

Additional to tax saving the huge potential of TESCM is materializing supply chain efficiencies. Therefore, in these specific TESCM strategy firms are finally creating a “real” global or regional SCM strategy; for instance creating a European procurement team that rather than optimize purchases at country level, they are leveraging the regional/global purchasing power of the corporation.

However, the most important question likely is how do we get important tax effective savings with this strategy? The answer is moving activities (planning, procurement, call-centers, etc.), assets (stock, facilities) and risks (risk of: receivables, stock, purchase and manufacturing) from other countries to headquarter country which “allow us” to move transfer price to headquarter. So we are transferring benefits from other countries to headquarter country where the effective tax is much lower.

Tax Efficient Supply Chain Management (TESCM): Centralized Assets and Operations

We have to mention that this very attractive TESCM strategy has some risks that need probably be mitigated with support of experienced tax consultancy firms. In the last years many large corporations have moved headquarters to countries like Switzerland, and any “political and economic” movement is expected from EU to avoid this transfer of countries’ income and qualified staff to countries with much less taxes. Thus in the future tax corporation homogenization should be expected in the EU. In the short-term the governments that have lost important incomes from those multinational are checking taxes paid in the last years to disincentive that practice and trying to recover part of the income likely with fines from tax inspections.

Tax authorities are going to find out if this price transfer is legal or not. Thus, they used to request e-mails, purchase order, sales orders and so on in order to demonstrate that the activity was not transferred to other country and profits cannot transfer too. There are firms that implement the tax saving but they “forget” to properly implement that transfer of activities, assets and risks. Be aware that implementing this strategy in large multinational is expensive and take “some” time.

When we have to work in a subsidiary turnaround, first thing that we have to investigate is any transfer price issue. That can be the main cause of subsidiary failing.

Outsourcing services

One of the advantages of outsourcing is that the company that performs the service used to have lower salaries according to that specific industry (logistics service providers, re-packers, and so on). In that case the social charges/taxes are lower because salaries are lower. Moreover, outsourcing activities (e.g. call centers) to other countries can bring even further salary reduction and even additional saving because they could pay fewer corporate taxes in those countries. So this TESCM strategy can mean that we are reducing taxes at the same time that we take advantage of outsourcing (reduce costs, avoid investments, gain flexibility, reduce complexity, and so on). I have to stress that lower salaries should be constrained by countries’ laws regarding minimum and fair salaries, and even company policy regarding fair salaries.

Realizing of TESCM potential could make us outsource tax services with specialized tax consultancy firms which could help us to accelerate the process to detect and materialize opportunities, and to avoid risks. In this case we would be outsourcing services to firms that will likely pay for salaries higher than in our industry, but the expertise and cost benefit analysis recommend we should outsource these services.

Bounded warehouses

This type of warehouses allows companies to build stocks close to the selling market, and delay the payment of taxes (import taxes, and VAT mainly) to the moment of the sales. So this specific strategy is much more focus on improving cash-flow massively, then this is affecting the profit and loss account reducing our borrowing costs. We must be aware that bounded warehouses required of processes much more robust to guarantee that we are not having additional risks related to taxes. The complexity and risk of having a bounded warehouse used to push us to have a centralized bounded warehouse which means having the benefits of a centralized warehouse. In this article we are not going to analyze the advantage and disadvantages of centralized warehouse, but some of the advantages of centralized warehouses used to be: higher control, flexibility, responsiveness, and even less cost coming from higher efficiency. We have to mention that diseconomies of scale is likely the most important constraint for a centralized warehouse that can make us create a new warehouse. The other could be networking optimization design.

Using alternative low cost ports located in low taxes states

Most companies used the biggest, busiest, and most common ports which used to be the highest port taxes and used to be located in states with highest taxes too. So there is an opportunity to use “second level ports” with fewer taxes and not necessarily worse service. That is part of the job of supply chain professionals, synchronizing ocean freight with other supply chain areas to get the economic benefits of those “second level ports” without affecting in the service level (ocean freight frequency). Moreover, it must mention that those smaller ports used to have a good local service level because they are less busy and more customer focused.

Tax and Supply Chain Management areas can bring important benefits to our firms, if those are managed properly. We can be losing TESCM opportunities, if we do not nurture of internal/external resources those areas and support collaboration initiatives to look for new saving. Furthermore, if those areas look proactively for new saving, it will probably bring other saving just tax related (there is not any SCM efficiency) like reduce import cost because there is a new product classification according to customs, new tax reductions for specific industrial product in some underdeveloped countries, and so on.

Sales Efficient Supply Chain Management (SESCM): A Success Foundation for a Business Model

There are some managers still thinking that Supply Chain or Operations are the enemies of Sales. They think that the goal of those areas is just reducing costs what would mean to deteriorate the firm service level, and finally that would negatively affect customer satisfaction and sales. However, a few management tools as Balance Scorecard show clearly that there is a positive link between back office processes and the customer perspective. Thus, leading firms are able to demonstrate this positive direct relation between Supply Chain Management and Sales.

What is Sales Efficient Supply Chain Management (SESCM)?

To be successful in the fierce competitive marketplace, it is not enough having a good Sales or Operation strategy any more. Nowadays we need both synchronized strategies with a powerful synergistic effect that allows market leader firms to beat the market. This is what we could call Sales Efficient Supply Chain Management (SESCM.)

Are Sales and SCM opposite views of the company?

Someone could be still thinking that Sales and Supply Chain are not really “enemies” but “opposite” views of the firm (front-office vs. back-office). Nevertheless, the origin of logistic is likely one of the 4 Ps of marketing, I mean Placement. So the main logistic objective is satisfied customers delivering the right products, the right quantity, with the right documentation, in the right place, at the right time, with the right packing, and to the right customer. In addition, Supply Chain goal is to improve customer performance attributes (reliability, responsiveness and agility.) Also, it should improve internal performance attributes (cost, and assets) or at least to maintain an acceptable competitive level on those internal attributes. Thus, we could say that Sales and Supply Chain Management are not necessary opposite views of the firm rather than complementary views with the same goal of customer satisfaction.

How do leading organizations implement Sales Efficient Supply Chain Management (SESCM) strategies?

Uncoordinated Sales and Supply Chain areas just drive companies to mediocrity. On the other hand, a well-coordinated Sales and SCM areas can bring huge operational benefits AND sales growth. That is the result of success Sales Efficient Supply Chain Management (SESCM) strategies. Let’s go to review a few examples of SESCM strategies to get a better understanding:

• ROLLS-ROYCE Power System (MTU do Brasil) stock reduction program. MTU do Brasil was in a complicated distressed turnaround situation where it needed to improve cash flow and profitability quickly. Thus, a few SESCM initiatives were put in place. First, overstock reduction with discount campaigns. Second, write off obsolete stock to improve the warehousing process and the stock costs (cost of capital, damage, insurance, obsolescence, and shrinkage), AND being able to build stock on the reference that customers really need. Third, implementing a make-to-order scenario for preventive maintenance (overhauls) based on collaborative planning with customers, which reduced the stock need it for those services and the transportation cost. Moreover, with better planning we got to serve better customers (improving the reliability of Delivery On Time.) We must stress that service is a Key Success Factor for future sales. Fourth, stock transfer to customers searching for additional discounts. So we avoid extra cash needs to finance a few growing projects, offering special discounts to customers willing to build some stock. Those discounts supported sales growth, AND that stock in the customer side reduced the KPI of Equipment Downtime accelerating the services to customers AND improving the company cash flow.
• CADBURY implementation of minimum order size. This initiative could mean inflexibility and lack of customer orientation. The implementation result could have the risk to lose sales from customers who prefer smaller orders and more frequent deliveries. Indeed, the result was very positive. From the logistics point of view there was a cost saving because the number of shipments per year were reduced, and the size of the shipments were increased. From the sales point of view this initiative pushed customers to purchase just a little additional quantity, the supermaket shelves showed more product attracting better customer attention, and reducing the sales lost for out of stock (during unusual high sales days, delivery delays, transport strikes, etc.) Finally, retails realized that their handling costs were reduced AND sales were growing. So the initiative were working well for all the stakeholders.
• ZARA/INDITEX supply chain strategy to produce and distribute in small batches. Small batches make raising production and distribution cost, but it allows Zara to avoid overproduction costs, minimize inventory, and reduce unsold products return. So at the end the advantages were higher than the disadvantages. Traditional approaches would say that small products batches generated stock-outs, fewer sales and unhappy customers. Nevertheless, this lean approach “is pushing” Zara customers to buy quickly because if they delayed the purchasing decision, next visit to the store could be late to find that product any more. Additionally, Zara customers used to visit Zara stores more often than visit competitors’ ones because they know that Zara bring new products in small batches almost every week.
• MERCADONA Spanish Supermarkets stopped selling references that could not sell at least one unit in all their network of supermarkets every day. This initiative could generate customers defections who are loyal to some brands that they will not able to find in Mercadona anymore. Nonetheless, this initiative increased supermarket profitability per sqm because of the increase of references turnover, reduced the complexity of handling many references, and increased the purchasing power of Mercadona with the remaining ones. Sales did not fall down because customers are more loyal to Mercadona high quality service than brands from manufacturers. Many customers had to change their initial products preference to Mercadona owned brand, but Mercadona brand is much cheaper and with “similar” quality what increased customer satisfaction and loyalty. Moreover, this approach increased supermarket contribution margin while competitors were reducing the selling price and their margins to stop sales drops due to the Spanish economy slowdown (from 2011 to 2014).
• IKEA business model based on transferring supply chain activities to customers to get lower selling prices. Many managers think about increasing the number of services to increase sales and profit. But Ikea realized that transferring some activities to customers as pick, load, ship and assemble products would get a better value chain configuration for customers. The new value chain improved selling prices what it is a Key Success Factor to increase sales and profitability. Additionally, handling disassembled furniture for inbound logistics is bringing an important stream of cost savings on inbound transport and storage.
• TOYOTA production system (lean manufacturing). Lean manufacturing is based on reducing the 8 wastes (overproduction, waiting, transportation, overprocessing, inventory, movement, making defective product, and knowledge disconnect). This approach challenges the traditional approach based on  “over production and over stock to serve customers better.” So Toyota implemented this production system what optimized its supply chain reducing the 8 wastes AND delighted customers with high quality products at reasonable cost. The result was that Toyota achieved the world biggest car company position.
• DELL make-to-order strategy for mass customization. During long time was assumed that firms building stock could offer immediate product availability, and would be able to close sales easier. But what about customer customization? Dell showed us that make-to-order is a very profitable strategy because with almost ”zero stock,” they can avoid the huge costs related to stock AND customized products to customers’ needs. Thus, Dell was able to offer a very customizable product at competitive rates (Internet disintermediation effect was another KSF) what increased their sales importantly.
• CHEVROLET Spain (Daewoo motor at that time) quick market entry by logistics outsourcing. We could think that because market entry is an important decision, outsourcing logistics could not be the appropriate entry strategy (one of the disadvantages of outsourcing is “losing control”). However, Chevrolet/Daewoo successfully materialized all the advantages of a logistics outsourcing strategy (cost reduction, flexibility, complexity reduction, etc.) AND they could focus on developing the non-existent dealer network. Moreover, the logistics investments avoided by outsourcing supported extra sales and marketing initiatives to make the brand awareness faster. So there was operational cost saving, AND sales growed quickly.
• UBER cost advantage of drivers and cars iddle time to beat the market. This firm offers around 30% cheaper prices than traditional taxis, AND much better service because it is more secure this service than taxis driver (this is an important differentiator in some countries where security is an issue like Brazil), vehicles have and use air conditioner (underdeveloped countries have an important amount of taxis without AC, and in developed countries they have AC but drivers many times decide to switch off to save fuel), the customer service is better (Uber vehicles have sweets, water, and service is evaluated after trips to guarantee the best service level). But how can Uber offer better service and cheaper rates? Uber has a SESCM strategy in place based on taking advantage of assets/cars and driver iddle time. So many drivers are working for Uber because they are unemployed or as a second job for extra income because they have some free time and their vehicles too. Furthermore, Uber application supports drivers to get more services and improve their service turnover compared with traditional taxis. This offer Uber a cost competitive advantage that is using to attack taxi business with lower rates.

Some of the above SESCM examples redefined completely the firm value chain, and that strategy used to be the essence of their company business model (for example IKEA SESCM strategy). Furthermore, in those success business models growth mean profitability, because profits growth faster than sales due to operational efficiencies that limited overheads’ growth at the same rate (Eg. Zara/Inditex).

Uncoordinated Sales & SCM versus Sales Efficient Supply Chain Management (SESCM)

In turnaround situations, we used to find uncoordinated Sales and SCM areas which blame to each other. Implementing SESCM strategy is not an easy job, but these initiatives can really turnaround the firm performance and profitability. Exploring lean techniques is a good initial point to find Sales Efficient Supply Chain Management strategies.

Barriers to implement Sales Efficient Supply Chain Management (SCEM)

The higher handicap to implement Sales Efficient Supply Chain Management (SESCM) is getting a CEO which background is quite unbalanced to Sales or SCM side. I mean CEO should have a complete vision and understanding of all areas of the firm. The CEO should have the skill to think out the box and find strategies in which Sales and Operations have a synergetic effect rather than uncoordinated strategies which sum is zero. The conservative CEO is unlikely to get advantage from SESCM because he/she used to replicate traditional and low risk strategies. SESCM strategies need well-prepared, imaginative and courageous leaders who realized that copying the strategy of the industry leader is a losing battle.

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