“The Start-ups’ Struggle” With Supply Chain – What is the Answer?

“The Start-ups’ Struggle” With Supply Chain – What is the Answer?

AUTHOR

Vivek Sood

UPDATED ON

September 22, 2020

NUMBER OF WORDS

TIME TO READ

Updated in September 2020

TL/DR Abstract

Many startups make it to the end, and meet the dreams of their founders.

Many other founder on the rocky shores of hostile markets.

However, an equal number of startups founder due to another reason - an inadequate supply chain (or backend as they call it in the startup lingo). In reality, the backend is even more important than the front end. 

Why?

Because, no matter what you promise to your customers, you do not have a business if you cannot meet that promise reliably ever time a customer stands in front of you.

That is where supply chain comes into picture. Start ups make two big (uuuge) mistakes when it comes to supply chains:

  1. They recognise the value of supply chain / fulfilment capabilities / backend far too late. They assume that magically the backend will take care of itself. That never happens. 
  2. Once they recognise the value of supply chain / fulfilment capabilities / backend, they hire the wrong person from an established and mature supply chain to take care of the problem. They fail to recognise that the maturity of the supply chain is an issue.  

That is why we used our practical experience with a number of well-funded startup supply chains to create the supply chain maturity model for innovation and startups. We outline this model in a number of our books and reports. 


It's really hard to design products by focus groups. A lot of times, people don't know what they want until you show it to them.

Steve Jobs (1955 - 2011), Business Week, May 25 1998

In most people's vocabularies, design means veneer. It's interior decorating. It's the fabric of the curtains of the sofa. But to me, nothing could be further from the meaning of design. Design is the fundamental soul of a human-made creation that ends up expressing itself in successive outer layers of the product or service.

Steve Jobs (1955 - 2011)

Let’s start with a story

When Apple first launched its iPod music players in November 2001, no one had an inkling what it would lead to in a decade's time. The first salvo that Apple fired in what eventually became a market domination of the mobile phone market, did not look like a mobile phone at all.

Indeed, none of the mobile phone players - whether market leaders such as Nokia or Ericcson or followers such as Samsung, Siemens, LG, and many others - displayed any sign of discomfort at the launch of iPod. The entire battle of iPod and iTunes was fought on the turf of the music industry's drive to save itself from $0.99 per tune pricing policy of Apple.

Fire-Aim-Ready Innovations keeps your competitors guessing your intentions

Ironically, an industry which was half decimated by music piracy was busily fighting the very network which could save it - while the industry that would eventually be decimated was cheering on.

When the iPod first came out, all the competing products in the market were clunky, large and erratic in their functioning.

Why we are qualified to write this Article?

Over the last three decades we have led and worked on more than 500 projects in supply chain restructuring in dozens of industries and countries. 

A small subset of those projects was working alongside the funders, the boards and executive teams of well funded startups to configure their supply chains from scratch. We are the world's only supply chain boutique strategy firm who have built a considerable library of intellectual capital on startup supply chain management.

VERY FEW PEOPLE KNOW SUPPLY CHAINS LIKE WE DO - Retail, beverages, food, milk, dairy, meat, livestock, explosives, chemicals, cotton, rice, graphite, solar power, natural gas, crude oil, fertilizers, electronics, packaging, glass manufacturing, machine parts, automobiles, industrial goods, mining, etc are just some of the industries where boards and executives have benefited from our proprietary knowledge. 

Since when no one had heard of supply chain, our co-founder Vivek Sood has been considered one of the most authoritative professionals in the field when it comes to the subject of supply chains restructuring in his clients' corporations in Australia, Asia, North America, South America and Europe.

He has written four seminal books about restructuring supply chains to gain massive advantage in business. He also regularly delivers keynote speeches at business schools and conferences such as University of Technology Sydney, Supply Chain Asia, Asian Bankers Forum, APEC Business Advisory Council.

He has been quoted in the authoritative business press and over 100 academic papers written by supply chain researchers around the world. Vivek and his team have examined thousands of supply chains during their projects over the last three decades and helped hundreds of executives build safe, cost effective and sustainable supply chains and careers. 

Transferring music files from CDs to computer to digital music devices was a major task, and piracy and peer-to-peer sharing was rife on the internet.

Many observers doubted the wisdom of selling tracks on iTunes when they were freely downloadable on the internet.

With its white headphones, small form factor, easy to use interface, user friendly computer link to both Mac and Windows, iPod quickly became an epitome of 'cool' from 2001-2006.

As successive versions of iPod were issued (I cover version update in much more detail in Advanced Product Phasing) newer features, more capacity, updated iTunes software for computers were introduced luring the customers to buy many more versions of iPod.

Newer products in the same genre - iPod mini, iPod Nano, iPod shuffle, iPod Touch - were introduced to further capture the market, each with its own round of successive generations.

Each step in the Fire-Aim-Ready Innovation generates multiple platforms for future innovation

Apple was making huge inroads into the hearts and minds of the customers - especially non-Mac users who had no previous experience with the iconic brand.

At the same time it was gaining expertise, knowledge and experience in small portable gadgets learning how consumers interacted with these, learning what the missing pieces in the existing gadgets and most were importantly building key connections with the network of suppliers, developers and other network participants who would eventually make the iPhone a resounding success.

Meanwhile, smart phones were becoming popular with consumers and Blackberries with the corporate markets.

When Apple fired its second salvo in the battle for mobile phones, it was still not fully ready in the traditional sense.

For example, most corporate IT barons scoffed at the idea of using iPhones for corporate emails and networks because of the missing security features. Even the cameras on the first version were far more basic than those on the other smart phones on the market at that time.

However, the first iPhone was still an outstanding success which can be attributes to its massive consumer following from iPods, its 'cool' advertising, far superior user experience, reputation for delivering on its promise, and a number of sticky and unique features which were marketed very well.

Behind the scenes, Apple had already assembled an outstanding network of suppliers ranging from Foxxcon - the Chinese assembler to Fingerworks - the developer of the then unique touch screen software to the ARM the licenser of the CPU.

Working closely in a huddle with these suppliers, who were each sworn to secrecy, Apple retained its leadership position in product development time compared to its competitors by outpacing them significantly, while at the same time raising the product quality to level that leapfrogs the competitors.

Its innovations were truly disruptive in the industry, even though it always leapfrogged the competitors rather than take the low road to disruption as suggested by Clayton Christensen in his theory.

The disruption in the industry is evident from the fact the RIM - the maker of Blackberry - was soon on the ropes unsure of its own financial future.

No one knew at that time that the supply chain that Tim Cook would build for Steve Jobs at that time would sustain Apple without a single hit for another 10 years, and make it the largest company on earth and bigger than the economies of many countries.

Fire-Aim-Ready Innovations build a self-reinforcing eco-system

Having fired the first salvos in the battle of the mobile phones - Apple moved on to the next steps. It started taking aim towards its final goal of market domination.

It expanded its network of suppliers by a factor of hundreds of thousands by releasing the SDK (software development kit) for the Apps for iPhones and iPod touch.

Millions of Apps were soon released, each tested and approved by Apple to perform to its standards, making the developers big stakeholders in the success of iPhones.

There is no doubt that innovation is the engine that drives the economic development train. As stated famously by the renowned management guru, Peter Drucker "Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth."

An ability to innovate is the Fire burning inside the boiler of an enterprise that makes it successful and enduring. So it should not be a surprise that the first cornerstone of 5 STAR Business Networks is related to innovation.

You will also discover through reading this article why we call it Fire-Aim-Ready (FAR) innovation and why the companies that practice this achieve far superior results.

Innovation being one of the engines of growth is heavily researched topic

To some extent every business innovates at some times. A new product, a new way of making old products, or at least new technologies to build or supply the products or services occasionally show up on the radar screen on most businesses.

Many other businesses, such as 3M, have made innovation their hallmark of fame. Most other businesses lie somewhere in the middle of the continuum of possibilities in this respect.

The key questions are, however, how do super-networked businesses innovate better than the rest of the businesses and whether their results match the expectations.

While researching the topic of innovation, I was not surprised to note that no other topic besides leadership has prompted more numerous amounts of business books than the topic of innovation.

In fact, my research associates accumulated more than 550 summaries of business books on the topic of innovation when I had to stop them from collecting any more - simply because it would be impossible to go through any more, and be able to discern any new thoughts.

Towering above all the other writers and intellectuals on the topic of innovation is the Harvard Professor - Clayton Christensen. Among his books are the three titles - The Innovator's Dilemma, The Innovator's Solution and The Innovator's Prescription; the titles sum up the content of each of the three books quite succinctly. [1][2][3]

All these books are very interesting to read and use a number of case examples to set up the dilemma - the eternal struggle of the innovator to stay at the cutting edge of the innovation circle - and then provide the solution - create disruptive innovation by targeting new customers and fend off the competitors. I will not attempt to paraphrase his thoughts on innovation, but rather quote few selected words that are relevant to our discussion here

"A value network is the context within which the firm establishes a cost structure and operating processes and works with suppliers and channel partners in order to respond profitably to the common needs of a class of customers. Within a value network, each firm's competitive strategy, and particularly its costs structure and its choices of markets and customers to serve, determines its perceptions of the economic value of an innovation. These perceptions, in turn, shape the rewards and threats that firms expect to experience through disruptive versus sustaining innovations." The Innovator's Solution - Page 44 [2]

In our experience, the value network mentioned above, akin to the 5-STAR business network, is almost as important as the firm itself - not only for innovation, but also for efficiency, profitability, product phasing and modularized outsourcing.

Importance of the value networks - a network of suppliers and channel partners - to innovation is underpinned by its use throughout this book, and for that reason among other I thoroughly recommend Clayton's book to the readers.

Many companies falter in their Innovation efforts because of mismatch between the lifecycle stage and supply chain structure

Whether the innovation is disruptive or sustaining, whether it responds to the needs of new customers or existing customers, poorer customers or richer customers, or yet a different segment of customers altogether, the process of innovation itself is improved considerably by using the 5 STAR Business Network effectively.

Figure : Product Lifecycle (Source: Booz Allen and Hamilton, P. Kottler)

It is now well accepted and established that most products typically go through a product lifecycle similar to the figure above.

In the introduction stage, the product concept is put out, research and development is carried out, and the product is introduced into the market. At this stage, the key focus of the company is on carrying out research and development and introducing the product to the early adopters or to the enthusiasts who have a pressing problem, which this product solves.

However, it is a very critical stage because the early enthusiasts will both like the product and decide to recommend it by word of mouth to their friends; family and peers or they will influence others to reject the product.

Also at this stage the company is still gathering a lot of market-intelligence about the product features, value in use, and sophistication of the technology with the intention of improving the product.

As the product catches on, it goes into the next stage called growth stage where the early majority starts accepting the product and there is a massive ramp-up in the volumes, in the production, and in the profits.

The company is scrambling to keep up with the demand at this stage. The key focus is to make sure that the shelves are full and stores do not run out of product.

In the next stage the product hits maturity. The growth starts tapering off and the competition becomes more established in the marketplace. Supply chains are becoming more defined and customers are becoming well educated in the product benefits, features, differentiating factors and value in use. Now, the company wants to make sure that it can supply the products to the customers at the most profitable margin.

Finally the product enters the last stage of its lifecycle called the decline. At this stage the product is finally being phased out either because it has been replaced by another technology or product, or because it is no longer necessary for the lifestyle of the consumers.

In this stage the company wants to maximize its own profitability before making a decision to discontinue manufacturing the product.

We have observed that many companies, even multi-line companies, follow similar trajectories, albeit over a much longer period of time. The maturity stage is extended for a long period of time in these lifecycles, though the other stages are not inconsequential.

"The Start-ups' Struggle"

Our work in supply chain strategy with growth stage companies has convinced us the supply chain model which is most appropriate for a mature corporation will almost certainly fail in a growth stage corporation.

Most start-ups struggle, and they come to this realisation far too late. Many of them fail as a result.

Supply Chain Maturity differs at each stage

In fact our supply-chain maturity model describes 4 stages of supply-chain maturity where each stage of product life-cycle is paralleled by a maturity stage of supply chain.

Figure: Supply Chain Maturity Model

Source: The 5-Star Business Network - Vivek Sood | Global Supply Chain Group

In the book mentioned above, I elaborate much more on how to use the right supply chain for the right stage of the product lifecycle.

One entire chapter is dedicated to a supply chain model that is suited for innovation, start-ups and rapidly ramping up companies. You will see many times a supply chain manager being hired from a mature long-established company being hired by a rapidly ramping up company, and failing to recognize the difference till it is too late. Unfortunately, in this race, you never get a second chance.

I am currently creating an online course based on above material, and my projects solving deep problems in innovative companies. Ask me for more details.


Copyright - These concepts, frameworks and ideas are copyright of GLOBAL SUPPLY CHAIN GROUP from the time of their creation. Do NOT copy these without permission and proper attribution.

Notes:

  1. These ideas and concepts will be usually expressed by our thought leaders in multiple forums - conferences, speeches, books, reports, workshops, webinars, videos and training. You may have heard us say the same thing before.
  2. The date shown above the article refers to the day when this article was updated. This blog post or article may have been written anytime prior to that date. 
  3. All anecdotes are based on true stories to highlight the key points of the article - some details are changed to protect identification of the parties involved. 
  4. You are encouraged to comment below - your real identity and email will not be revealed when your comment is displayed.  Insightful comments will be  featured, and will win a copy of one of our books. Please keep the comments relevant, decorous and respectful of everyone. All comments represent opinions of the commentators.

Vivek Sood

MORE INTERESTING READING
  • I read your article How Supply Chain Strategy Resolves “The Innovators’ Conundrum”? This is utterly undoubtedly awesome thinking. The other reason the supply chain management status quo seems stuck in the past is that really trans formative SCM is as much a business-process journey as it is a software journey. That’s hard, very hard, and even harder in companies that don’t understand how strategic their supply chain needs to be.

    In my wanderings about the supply chain world I have often been amazed at how good enough keeps being good enough, despite the fact that at a corporate competition level, good enough is usually the domain of losers and also rans. This fact alone often relegates true supply chain transformation to those renegades and rogues that dare think out of the box.
    Thanks-

  • This article shows supply chain maturity models that you can use to determine where you are and what you should do to improve supply chain operations.
    There is no silver bullet solution for supply chain problems. Each technique produces different results. This article has demonstrated the usefulness of simple technique like the supply chain maturity model.

  • The opportunities and threats in supply chain security are very well defined in this article. From years I was wondering why the threats to supply chain security are increasing with every passing day. Now, you have solved this confusion through this article. The threats are not addressed unequivocally and the tragic truth is companies try to hide the threats or weaknesses that lie within their company. Threats in supply chain engulf the opportunities and there is no space left for the development. Supply chain security and control is endangered in such an environment. This is why most of the emerging start-ups fade soon after they are exposed to the competitive market. The lack of timely identification of possible threats changes the existent opportunities into a series of never-ending negatives enormities.

  • Economic prosperity and social stability add value to supply chain security. You have accurately referenced the tragic incident of 9/11 in this article based on supply chain security. The social and political norms decided the future of industry of a company that is bringing home the revenue. The startups either relevant to technology or industry flourish only when the surrounding professional atmosphere is congenial. The statistics that you have articulated in this article can easily be quoted in this regard. At the back of this entire yearly downfall, there is a huge contribution of such events happening at local or international level. Even the workplace politics ignites the internal air and adds fuel to fire. In such situations, no startup can reach the highest of excellence and the same is true for supply chain management and security.

  • Surely a good article to read from you Vivek. I agree with you and I would like to quote one of the statements from your article specifically that says “for a start-up, a combination of hardware, software and some application know-how is the best bet”. Such an impeccable combination you have given precisely. A start-up can be started by anyone but for a successful start-up the basics of the software, hardware must be known. Without the prior knowledge of software, success can only be desired but not achieved. As we are living in an era of technology, the importance and involvement of technological innovations cannot be denied. Only oblivion would believe that without software and hardware a successful start-up is possible to run.

  • In this article, you have to pinpoint such crucial details about supply chain security that is really thought-provoking. Nobody these days care for this until it stuck the managers’ right in their heads like a bolt. The unexpected supply chain troubles then come in most expected ways. The managers, sometimes start ignoring the criticality and sensitivity of this topic. They just keep on putting all the warning at back and continue doing the things in the same pattern. The manager with the managerial expertise and technological capacity is more than capable of dealing with supply chain security concerns, troubles and distresses.

  • Supply chain security actually encompasses all the threats either residing externally or internally and both in the real world or in cyberspace. Supply chains security risks should be taken into account seriously are the organizations to better track their products from the manufacturing process to source vendors. The risks need to identify and a proper mitigation plan is prepared. The risk identification, assessment, planning, mitigation and probability of impact are indispensable in this very perspective. The right identification of risks at the right time automatically corrects the rest of the following processes. In supply chain security, in my opinion, it is not realistic to say that all the risks are identified and their respective mitigation plan is prepared. Few unexpected events like the one as you mentioned in this article as natural calamities could not be predicted in terms of their impact and intensity.

  • Who to blame in case of supply chain breach? All from top to bottom are responsible for this act of breach. The supply chain security breach is not something that happens accidentally and suddenly. There is always a series of events that bring such breach to the surface. The improper execution of supply chain management plans, inappropriate decision making, poor risk assessment and mitigation plans, economic disparities, terrorism, financial instabilities, lack of technological facilities, informational theft, cybercrimes and natural calamities are some of the key challenges that put pressure on the bud of supply chain and never let it blossom. The threats need to be addressed and the supply chain must be secured at any cost.

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