Six Reasons why supply chain strategies fail
It is not a secret that many, if not most, supply chain strategies fail to achieve their full anticipated results.
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It is not a secret that many, if not most, supply chain strategies fail to achieve their full anticipated results. This is despite corporations spending millions on dollars every year on strategy formulation and implementation. The experience base and the case study data set is accumulating and pointing towards some common reason why these strategies fail.
This article explores some of the most common reasons:
1. Confusion between Hope/Intention and strategy
Many people still think hope or intention is a strategy. Let me explain what I mean by this. Many a times we have worked on supply chain transformation projects where the business strategy is not very clear – at any level within the organization. On being asked during initial interviews, CEOs and senior executives would express what could be classified as either a goal or a vague longing for something to occur as their core strategy. Deeper probing would reveal only very few strategic underpinning regarding customer segmentation, competitor behavior, organization’s own strengths etc. on which this expressed strategy was based.
Strategy is a lot more – it is a well thought out plan that takes into account all the above factors, and many more. By its very nature such a process closes more doors than it opens. Otherwise it is very easy to fall in the trap of saying yes to too many ideas which have not been clearly thought through in terms of their strategic long term impact on the business.
Why is this important? Because without the clarity of vision, agreement on the chosen path, and the reason for doing so – personnel within the organization are confused, dispirited and cynical. Without the laser like focus that results from such clarity most implementations fall short on results.
2. Implementation gap
The second key reason based on our observation is the lack of ability and willingness to implement sound strategy. No matter how good the strategy is, it is really just a road map. Implementation is required in order to arrive at the destination. However, during the journey several detours are experienced due to political interference, personal biases, personal interests or other reasons which make it impossible to arrive at the chosen destination.
While, in most cases, the outcomes are still better than where the organization was at the start of the journey, if the political interference or personal biases/interests had not intervened, the organizations would have been in a much better position than otherwise.
Most readers will be able to quote numerous examples from their personal experience where the outcomes of the supply chain strategies were severely compromised due to implementation gap resulting from political interference or personal biases/interests of the key stakeholders which should have been adequately explored and taken into account during the strategy setting.
3. Strategist / implementer divide
One of the biggest problems we observe is that those who design strategies are rarely called on to implement them. Whether the internal teams, or external teams are deployed to formulate strategies – they are rarely called upon to be responsible for delivering the results that they estimate. If called up to implement, they raise the cost of implementation far above the anticipated benefits.
Those who implement frequently neither fully understand, nor endorse the strategic moves. Their involvement is only marginal during the strategy formulation process. They are also not used to esoteric methodologies espoused by the strategists hence they resent the expense and resist the attempts to bring them on board.
Each party blames the other. Strategists build in huge buffers, high level rubbery numbers based on percentages, and use other questionable methodologies to make estimates of potential benefits. Implementers use these short comings as an excuse to cover up for their own lack of planning, execution skills and discipline.
4. Insufficient hands-on knowledge among the strategists
A growing trend in the last 25 years has been that some of the most brilliant minds from most of the good universities have gone to consulting and/or investment banking. Frequently these people are put in positions where their job is to formulate strategies. The expectation is that with their superior intellect and education they will be able to see further and think deeper than mere mortals run businesses from day to day. The remuneration models of most strategy consulting firms and investment banks are based on this assumption.
However, as the global financial crisis has exposed, there is a fatal flaw in this thinking. These very same people have very limited, if any practical experience running businesses, factories or distribution centers. While the most imaginative among them can relate to the on the ground reality as described by other people, most others hide their lack of practical knowledge with an arrogance born out of a sense of superior entitlement. Needless to say that the strategies based on flimsy hands-on knowledge of the strategists would be suspect, as is generally the case. However, based of their credentials it is easy to sell these strategies to boards that are frequently even further away in their detailed knowledge of the core business of their organizations.
5. Proclivity to take the high road
In a story of Honda managers sent to the US to launch the motor bike business in California in 1959 the author described that these people more by accident than by design stumbled on the strategy of selling smaller 50cc motor bikes through non-traditional retail channels. While their initial intention, and the headquarters’ directive was to sell larger 250 cc or higher bikes through traditional channels, they were flexible enough to grasp the opportunities presented to them and humble enough to learn from the market. Perhaps apocryphally, the author goes on to describe that they lived simply, slept on the floor of their one bedroom rental apartment and traveled on small 50 cc motor bikes to and from work – which was the reason these bikes caught on. The rest, as they say, is history. Honda, now, is one of the most respected brand in the United States.
Contrast this approach with the typical culture of most organizations. Very limited time is devoted to understanding the substance of the issues. Most of the fact finding is done from air-conditioned offices and 5 star hotels. There is little flexibility in the strategies and no room for humility in the strategists’ minds. Scant regard is paid to the feedback from the implementers – who are seen more as self-centered whining rather than genuinely escalating the emergent issues. Is there any wonder that most strategies fail to achieve the kind of results Honda achieved?
Vivek Sood: Sydney based managing director of Global Supply Chain Group, a strategy consultancy specializing in supply chains. More information on Vivek is available on www.linkedin.com/in/vivek and more information on Global Supply Chain Group is available www.globalscgroup.com
Vivek is the Managing Director of Global Supply Chain Group, a boutique strategy consulting firm specialising in Supply Chain Strategies, and headquartered in Sydney, Australia . He has over 24 years of experience in strategic transformations and operational excellence within global supply chains. Prior to co-founding Global Supply Chain Group in January 2000, Vivek was a management consultant with top-tier strategy consulting firm Booz Allen & Hamilton.
Vivek provides strategic operations and supply chain advice to boards and senior management of global corporations, private equity groups and other stakeholders in a range of industries including FMCG, food, shipping, logistics, manufacturing, chemicals, mining, agribusiness, construction materials, explosives, airlines and electricity utilities.
Vivek has served dozen of world-wide corporations in nearly 85 small and large projects on all continents with a variety of clients in many different industries. Most of projects have involved diagnostic, conceptualisation and transformation of supply chains – releasing significant amount of value for the business. His project work in supply chain management has added cumulative value in excess of $500M incorporating projects in major supply chain infrastructure investment decisions, profitable growth driven by global supply chain realignment, supply chain systems, negotiations and all other aspects of global supply chains.
Vivek has written a number of path breaking articles and commentaries that are published in several respected journals and magazines. Vivek has spoken at several supply chain conference, forums and workshops in various parts of the world. He has also conducted several strategic workshops on various aspects of supply chain management. He received his MBA with Distinction from the Australian Graduate School of Management in 1996 and prior to these studies spent 11 years in the Merchant Navy, rising from a Cadet to Master Mariner.
6. Short term focus
Much has been written about the quarterly culture of wall street and its impact on the businesses. Managing earnings and the expectations of the wall street from quarter to quarter leaves very little room for strategic thinking or its implementation. Short term fire fighting takes precedence over long term socially responsible management for growth and profitability.
Add to that the short average CEO and managerial tenure of 3-4 years, most people now plan their career accordingly. First year in the role is marked by significant new projects and actions while rest of the tenure is spent in creating the results of the initial plans. However, most people know that the full results will not be seen in most cases till they have moved on. Hence they focus only on the short term results of the actions and modulate the actions accordingly.
In conclusion, the supply chain strategies will be good only when they are devised with due deliberation taking into account all the factors that surround the key decisions incorporated into them. At the same time, they will only work when implemented with rigour and flexibility. Corporations can save themselves a lot of time and money by avoiding the errors listed above.
About the Authors
Vivek Sood: Sydney based managing director of Global Supply Chain Group, a strategy consultancy specializing in supply chains. More information on Vivek is available on www.linkedin.com/in/vivek and more information on Global Supply Chain Group is available on www.globalscgroup.com
SUPPLY CHAIN CASE STUDY
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