The Opinion Page
News and comments about the issues facing today's SCM and Inventory Management professionals.
The following article, authored by "yours truly" was published in the Durham Business Times, February 2011 edition. I hope that you will enjoy:
As the senior manager or proprietor of a small or medium-sized enterprise (SME), does the prospect of developing a strategic plan frighten the daylights out of you? Do you view strategic planning as the exclusive domain of intellectuals, expensive consultants, or even mystical practitioners in the Dark Arts? Perhaps the overwhelming volume of literature and teaching regarding strategic planning has contributed to its becoming an intimidating activity. It does not have to be so. One thing is certain: those SME’s who effectively utilize a strategic plan enjoy a much greater chance of long-term success, whether measured in key financial performance indicators, longevity, or cultural stability. Professor Sydney Finkelstein of Dartmouth College provides a concise working definition of “Strategy.” It is: “what a company does, or does not do to fulfil its vision in a competitive marketplace”. The high-impact strategic plan can be presented effectively on one page. Its elements can be expressed in a few well-chosen words, clauses or sentences. The strategic plan should not be confused with an operations or business plan: the latter two are subservient to the strategic plan, shorter in timeframe, and far more detailed. A strategic plan well done is the manifestation of elegant simplicity. Yet it is powerful enough to guide the daily activities of dozens, hundreds, and even thousands of employees. Within the strategic plan, senior management sets the dominant logic and the moral compass of the organization. It is an opportunity to unambiguously document ethics for leadership continuity. It forces introspection and situational analysis. And, primarily through articulation of core values, it provides a directional beacon especially in hard times. Fundamentally, the creation of a strategic plan is a five-step process: The Vision The Vision is an inspirational call to action. In a few short words, the CEO or senior manager uses the Vision to point the way to the company’s future. It should engage our emotions. It should be designed to last for many years. For example, Google’s vision statement is world-class: “To develop a perfect search engine.” Core Values With ethical problems causing the downfall of countless corporations each year, preparing a statement of Core Values becomes vitally important. Choose five or six words or short phrases that define the values that must be intrinsic to your culture. Examples of such words might include “integrity”, “transparency”, or “honesty”. Core Values will guide your firm in making hard choices in very difficult times. They must not be compromised. They will state how you will treat others as well as yourself. Hire people who personify your Core Values. The Mission An effective mission statement should be able to tell your company story and ideals in less than 30 seconds. Comprised of three or four short sentences, it is more detailed than the Vision, and is often written in the present tense. It defines your company’s customers, products, and how your company contributes unique value for its customers. Strategic Objectives: Strategic objectives should be specific, measurable, attainable, relevant, and time-framed (SMART). Three to five objectives should suffice, and they should be attainable within one to three years. For reasons of confidentiality, strategic objectives are rarely published outside the company, but they must be effectively communicated to all employees. SWOT Analysis: This acronym stands for Strengths, Weaknesses, Opportunities, and Threats. An honest, fact-based discussion between senior management and key advisors needs to take place. Documenting strengths and weaknesses tends to involve serious introspection, while opportunity and threat analyses tend to require external environmental scanning. Since it establishes the firm’s current position relative to its competitive environment, the SWOT can be very useful in establishing objectives and even the mission. It is therefore frequently performed early in the planning process. The strategic plan is a living document. It must be communicated effectively and constantly to employees. Successful businesses frequently incorporate the plan into the annual employee performance review process, ensuring that individual and departmental goals and objectives are aligned with the strategic plan. The strategic plan should be reviewed at least annually, noting any SWOT changes that might require modifying strategic objectives. A comprehensive renewal of the strategic plan should be undertaken every three years. While helping to prevent tactical conflicts between operational departments, a good plan will also discourage spending on projects that are not aligned with strategic goals. For a wealth of information, simply search key words such as “vision statement” on the internet.
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On December 15, 2010, www.bloomberg.com reported the following:
"Goldman Sachs Group Inc.’s top executives will get about $111.3 million in stock next month in a delayed payout from last year and their record-setting 2007 awards, even as Wall Street prepares for lower bonuses. Chief Executive Officer Lloyd C. Blankfein, 56, is poised to receive about $24.3 million in January, based on the closing share price on Dec. 14, while President Gary D. Cohn, 50, will get about $24 million, company filings show. The payouts, just a portion of the $67.9 million bonus awarded to Blankfein for 2007 and the $66.9 million paid to Cohn, reflect a 24 percent decline in the stock’s value since it was granted at $218.86. Within a year after the bonuses were approved, Goldman Sachs took $10 billion of U.S. bailout funds, converted to a bank and was borrowing as much as $35.4 billion a day from Federal Reserve emergency programs. This year the New York-based firm paid $550 million to settle U.S. regulators’ fraud charges related to a mortgage security the company sold in 2007. “Clearly we now look back and say, ‘Were things fine? Should they have paid? Maybe not,’” said Jeanne Branthover, a managing director at recruitment firm Boyden Global Executive Search in New York. “There’s nothing you can do about it. The payouts were in stone. But hopefully, in the future, they won’t be.” In the weeks following the report in Bloomberg, it has become clear that Golman Sachs, and other large investment banks are charging full steam ahead, awarding billions in bonuses to their executives and staff. One report put the amount at an average payout of roughly $500,000 per employee. It is clear that the receptioist isn't going to enjoy a $500,000 bonus check. Executives will get the lion's share. So, as the US government (translateion: "taxpayer") bails out the braintrust at Goldman Sachs et. al, the extremely rich get even richer. During Mr. Obama's State of the Union speech tonight, perhaps he ought to bring out his Louisville Slugger, and drag some of these banking mandarins out to the woodshed, giving them the arse-whuppin' of their lives. Simply put, the investment bank eecutives have been big catalysts in one of the greatest financial crises in a century, even while they feather their beds of largesse with taxpayer money. , One has to question the judgement (or motive) of the Obama Administration as well, however. After all, as Bill Waddell of Evolving Excellence pointed out on January 25, 2011, Mr. Obama has just appointed GE's Jeff Immelt to head up the government's commission to create jobs. Immell appears tp have achieved good results during his tenure at GE from 2000 to 2010. The problem is, however, that 96% of the 81,000 new jobs created within GE between 2000 and 2010 were in countries OTHER THAN the USA! Top Ten Lists are ubiquitous at this time of year, and who am I to buck the trend? Here are ten stories that grabbed my attention over the past 12 months:
1. The Canadian Dollar: Good news in the short term for importers and southbound travellers, but bad news, at least in the short term, for exporters, the Canadian Dollar is closing 2010 at, or close to par with the US Greenback. I was never a proponent of the low-value dollar policy adopted a decade or more ago by successive Liberal Governments at the federal level, since it excuses business process inefficiencies that creep in to many industries. The Canaidan economy appears to be responding well to the economic crises of 2008 and 2009 in spite of a high dollar (or a low greenback), and insofar as the high dollar increases consumers' buying power, I say "bring it on!". 2. The HST is Implemented in Ontario: Many of my colleagues will disagree with me, but I say the HST (Harmonized Sales Tax, which is a combination of the old GST - Goods and Services Tax - and the PST - Provincial Sales Tax) is a bad tax implemented at the wrong time for Ontario. It has its benefits (such as system simplification), but I do not believe for one minute that the HST will be the job-creation machine that our Province's Premiere claims it will be. The middle class is being ripped apart in Ontario, and the gap between the very rich and the poor is widening. This is just another level that the governments can pull to draw more wealth out from the beleaguered middle class. Besides, the manner in which the tax was introduced to Ontarians was underhanded, to say the least. 3. The BP Gulf Oil Disaster: BP's initial estimates of the volume of oil leaking from the Deepwater Horizon site was 1,000 barrels per day. This estimate grew to 5,000, then 12,000, then 25,000 then 40,000 then 60,000 barrels of crude, or 2.5 million gallons per day, pumping into the Gulf. The scars left on planet Earth are immeasurable. It was an abject failure of safety standards. In a move reminiscent of comments made by Snow Brand Milk's President Tetsuro Ishikawa on July 1, 2000 the the wake of a Japanese food poisoning catastrophe, BP President Tony Hayward says, "we made a few little mistakes early on", and his famous, There is no one who wants this thing over more than I do. I want my life back." (For the record, Mr. Ishikawa yelled eerily similar comments to a press gallery who were pursuing him for answers, "I haven't slept!". My heart bleeds for these poor folk. And today 12/30/2010 it is revealed by the Washington Post that the administrator of the $20 billion compensation fund set up for oil spill victims, Ken Feinberg, is paying an ethics professor from New York University to testify that he is independent of influence from BP. The madness never ends. 4. The Price of Gold: As the year closes, the price of gold surpassed $1,400 CDN per ounce. I clearly recall sitting in the parking lot outside the Bank of Nova Scotia in Markham, Ontario with the intent of going inside to purchase $20,000-worth of gold bullion at $800 per ounce about three years ago. I talked myself out of it, as too risky a venture. Stupid, stupid stupid. 5. The Toronto Mayoralty Race: In October, the City of Toronto made a monumental decision in electing conservative candidate Rob Ford. After years of hubris, waste and arrogance at City Council, Ford's message was simple: "I will stop the Gravy Train." Ford promised that City Hall would, subsequent to his election, respect the taxpayer, and that all staff would focus on the needs of the citizens. What a novel idea. There were many interesting sidebars to the election, which included the Toronto Star newspaper's unabashed support of candidate George Smitherman, and their raw hatred of Mr. Ford, Smitherman's attempts to distance himself from the notorious eHealth scandal which occured during his watch as Minister of Health and Deputy Premier with the Ontario Government, Councillor Kyle Rae's inexcusable retirement party, where $12,000 of taxpayers dollars were wasted, and mud-slinging extraordinaire at Mr. Ford. It is my hope that Toronto will become a more business-friendly jurisdiction as a result, with more value being delivered to the community. 6. eco-Fees in Ontario Hot on the heels of 2009 spending scandals from eHealth and the Ontario Lottery and Gaming Corporation, where it was found that crown corporations / agencies were wasting billions of tax dollars with little or no return and certainly no oversight, the governing Ontario Liberal Party found itself stuck in another tarpit. While the Libs were foisting an unpopular HST on the public, a new set of so-called eco-Fees were applied on over 10,000 products effective July 2, 2010 without warning. Here was an example of taxation without representation if we ever saw one. It would be kind to say that the tax was applied arbitrarily and unevenly. Eco-fees were being applied to grass seed, sun block and vitamins among other such toxic materials. The fees provided no incentive whatsoever for vendors to bring products to market in an environmentally friendly manner. Eventually, public pressure forced the government to back down and the eco-Fees ended up in the junk yard. : 7. The Recovery of General Motors: Many of us were digging the grave for GM to fall into - in 2008, it appeared to be just a matter of time. But we must extend credit when credit is due. The Wall Street Journal Reported yesterday 12/29/2010: "In a series of bullish reports from banks involved in GM's initial public stock offering last month, the analysts predicted GM shares would hit anywhere from the low $40s to $50 within the next year. GM stock has been trading in the low- to mid-$30s and closed Tuesday at $35.32 in New York Stock Exchange trading, up 72 cents. But even the most optimistic prediction would have the U.S. government losing money on its $50 billion bailout of the auto maker last year. To break even, the U.S. must sell its remaining GM shares at around $53 each. The reports come as GM and its stock underwriters are increasingly optimistic that the Obama administration will sell most or all of its remaining stake next year, rather than offloading shares gradually over the next few years. The U.S. Treasury reduced its GM stake to about 33% from 61% in the $23.1 billion IPO." Great news for my friends in Oshawa and St. Catharines, and even a confirmed Hyundai owner like myself was impressed with some of the new GM products, including the GMC Terrain and Chevrolet Equinox. Congratulations, and keep up the great work. 8. The Eruption of Icelandic Volcano Eyjafjallajökull Thank goodness that the human cost of this disaster was minimal. However, the volcanic eruption disrupted travel and exposed flaws in supply chains around the world. With JIT and Lean processes in place, it is more important than ever to plan for potential disruptions. Firms must look for vulnerable spots in their supply chains and plan and practice evasive actions. 9. Potash Corporation: A staple of the Saskatchewan landscape for decades, August of 2010 saw Australian mining giant BHP Billiton mount a $40 billion hostile takeover bid of the Canadian PotashCorp. The bid was considered by the Federal Government for some time, amongst considerable drama. Finally, Industry Minister Clement announced in December that the deal was effectively dead. 10. After some deliberation... It was difficult for me to select my tenth story this year. On the short list were rising energy prices in Ontario, the meltdown of economies in Europe including Greece, Ireland, Spain and Portugal, the growing trend of co-opting of the term "green" to justify all sorts of consumer rip-offs, the suicide of Mark Madoff and the tragedy that was his father, and even the continued meltdown of the Tiger Woods Empire. In the end, I decided to go with what has almost been a non-story: the strength of Canadian Banks and the Canadian Banking System. In Canada, we love to hate our banks, and often with good reason. They charge us with userous credit card interest, exhorbatent user fees for account maintenance, and offer measly interest rates on savings of less than 1%. But, their strength, and the strength of the system, carried Canada through the Recession that endured from late 2008 through most of 2009. I am thankful that our economy did not collapse, and that my savings were relatively safe throughout. I was thankful that I was able to proceed through the last two years being able to make normal transactions in my accounts with no interference. And I am thankful that I have made the right deciions regarding my savings for my children's education. So, I somewhat begrudgingly give a thumbs-up to our banks - even if we the public do have to carry the bankers on our backs to the Champagne Bar on Friday afternoons. Cheers!, and Happy 2011. JDS I have recently been engaged in a conversation with colleagues in APICS about Lean. Some terrific thoughts have been presented by many people. I came across two brilliant quotes provided by Chris R. Deans CPA CPIM CIRM of LeanTech International Consulting based in Shanghai and Nanjing.
On the subject of "Humility" Mark Twain is credited to have said that " it is the one characteristic that as soon as you think you have it, you don't." Taking that notion into the field of Lean, Chris Deans says, " Lean is not a destination but a journey and the minute you believe your enterprise has arrived is actually the instant you have lost it". Thanks, Chris. I couldn't have said it better myself! I am taking a little break from my theme about "Deming's 14 Points" to direct your attention to a fascinating little article in the Monday, July 19, 2010 edition of The Globe and Mail. Here is the link:
http://www.theglobeandmail.com/site-search/?q=Chief+Killing+Officer&x=35&y=15 Auren Hoffman's (via Harvey Schachter) brief submission is particularly relevant to the Inventory Manager. He argues that in many facets of a growing business, there is a time when one must kill things off that are no longer helpful. Accumulation of discontinued, out-of-season, out-of-fashion, and otherwise obsolete inventory is frequently one of the most pressing inventory problems faced by retailers, wholesalers and manufacturers today. And it has been that way for a long time. Sometimes it exists, lurking in the weeds, unidentified by the business for years. Sometimes it stares us in the face on a daily basis - we trip over it when we visit the warehouse, and it is on all of our slow-moving inventory reports. Sometimes the CFO says that it is too expensive to write down, or write off. And sometimes we simply fall in love with our product, and enter a period of denial while sales drop off and the goods are simply not as glamorous, attractive, and sexy as they used to be. Divorce, frequently, is a fact of life. It is my observation that companies need to be far more brutal about killing off unproductive sku's than they have been over the past 30 or more years. Products that are at risk of becoming out-of-season require special treatment. The project of managing seasonal product inventories is a little too complex to address in this blog. But it is possible with today's POS technology, some diligence, budgeting for reality, and some planning. The simple fact, and prime motivator is that one day after the seasonal event (for example, Valentine's Day, Christmas, Easter, or Halloween) seasonal products are worth a lot less than they were 24 hours before. Valentine-related products are worth a minimum of 50% less on February 15th than they were on February 13th. The trick is to follow each sku's sales (or depletions) closely relative to your pre-season sales profile, and take pricing or transfer action before it is too late. Re-project, re-project, and re-project, daily if you have to do so. Identify and kill off the non-producers - sell them before the end of the season, and do not relist them next year (or purchase more conservative quantities). Non-seasonal products have a life cycle as well. The trick here is to avoid making that "one last big purchase" in anticipation of sales that will never transpire. Take the care to know where you are on each product's life cycle profile, and take clearance action when it won't break the bank. A 25% markdown taken now might clear up potential problems, that would cost a 75% markdown six months from now. Above all, the Inventory Manager needs to be objective and cool-headed. Every Marketing Manager in the world will try to tell you that every product he has ever introduced has been a smash success. Marketeers are lovely people, but if you listen to them too frequently, you will soon be swamped with sku's, awash with inventory, and stumbling over dusty "product enhancement" materials (such as wrapping paper, bows, baskets, and signage) that have grown to take over your warehouse. On new assignments, I have walked into some of the biggest inventory messes known to mankind - and frequently I was there because the warehouse was bursting at the seams with old marketing collateral and obsolete items that Marketeers thought would sell to some idiot some day. That "some day" never came. Cull the herd of skus before they breed themsleves into an uncontrollable mess. Be vigilant. Kill the old geezers now. Hoffman goes on to highlight problems with meetings, reports, processes, and people. We've all been in meetings where we wonder "why am I here?" and the only answer is "because we've always held this meeting." Kill it. Kill the reports that no one reads. Kill the processes that are no longer value-added. And, sadly, review the people who are not making a contribution. First, discover whether barriers are preventing performance. But Reed Hastings of Netflix is quoted as saying "Adequate performance deserves a nice severance package." I have a colleague who works for a major player in the international financial services industry. This company is solid financially and is generally successful, but experiences the usual types of customer service issues that many companies face: failure to deliver some proportion of their service to a client or customer on time. These failures result in disappointed or irate customers, and frustrated customer service agents.
My colleague explained that while internal business process lead times involving exchange of information from person to person, or from department to department, are written in to policy, the lead times are frequently ignored. In the simplest of terms, documents sit on Individual A's desk for a week longer than they should, and others have to make up for the problem. The result is that tremendous pressure is put on downstream business processes to make up time for upstream failures. This pressure can come at great cost, both financially (overtime) and in human terms (stress). If the downstream work centre cannot deliver miracles, or they simply pay attention to the policy lead times that are standard for their section, the customer receives the service late. Result = irate customers, and another series of problems with which the company has to deal. It is not good enough to articulate workable lead times in policy. They must be monitored and enforced. Their importance must be underlined by Senior Management, even in industries that deliver no hard goods. It is interesting that such a best practice in Supply Chain and Inventory Management applies even to such an industry. By applying good logistics principles, this company could achieve considerable improvement in customer service, It can be done! |
AuthorJohn Skelton is the Principal Consultant and founder of Strategic Inventory Management. Archives
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