Process of having the suppliers bid analysis
There are a couple of problems with the current situation, as Raj is discovering. The first is that the engineer, Angela, is ordering without the consent of the supply chain division. This alone is cause for concern because this is not the process, and she is not following the supply chain department’s processes. So in that sense, regardless of what else is happening, there appears to be at least an error made. This might also reflect a certain mistrust of the department in terms of what they think the supply team does (order).
Further, this process of having the suppliers bid against each other on price is worrisome. Price might not be the only criteria against which bids are evaluated, for example. The reality is that if it was just about price, you wouldn’t really need a supply chain department. The supply chain management function weighs a number of factors when ordering goods, including all the different specs for the goods, but also the relationships with the different suppliers. Maintaining good relationships with critical suppliers is part of the supply chain management role, and the approach that Angela is using might serve to compromise some of the relationships that have been built up over the years. Specifically, if these suppliers are accustomed to closed bids, having their bids used against each to lower the price might ruffle their feathers, and not just by a little bit. Angela is not taking the suppliers’ interests to heart hear, which is something the supply chain team has to do.
There is a final issue in terms of culture, where the organization in general does seem to lack respect for what Raj does. The reality is that Raj is new, and has had trouble convincing people in the company to do what he needs them to do. Relationships with suppliers are being soured and inventory is stacked to the roof. Raj needs to either earn or demand the respect of his co-workers quickly so he can instil best practices approach to supply chain management, remediate the damaged relationships with key suppliers, and restore an organizational culture that respect the role of the supply chain department.
One of the issues that the company is also facing is that the development of new products has been significantly higher than target over the past year. With a target of 30 new products, they produced 32 in 2009 but then 57 in 2010. This explosion in new products has caused financial metrics to suffer, and for both customer and supplier satisfaction to deteriorate. There is a loss of focus in releasing so many new products. Furthermore, there are now goods in inventory that have significant overlap in terms of functionality, something that creates a situation where inventory turnover has declined sharply and is well below the KPI target. The reality is that the inventory turnover. So some of the biggest problems that the company is currently facing are related, and are issues that Raj can solve.
Raj has a number of options. The first one is to use his expertise and formal power as the supply chain specialist to implement solutions on his own. This would mean bringing back control over inventory management. Under such a situation, Raj would likely need to write up new SOPs, scale back the authority of different managers and plants to do their own ordering, and to concentrate supply chain management power centrally. To the extent that taking a decentralized approach to supply chain had its benefits, the last year has shown that having people involved who simply are not professional supply chain managers has had a detrimental result to the quality of supply chain management, and now the warehouses are full of inventory, to the point where some of that inventory might need to be written down. The company’s financials are failing to hit their targets, and part of that is because so much capital is now tied up in inventory.
The major advantages of this option are that Raj has the expertise to solve the problem. He is specifically trained to run a good supply chain system, and in fact that it what he was hired to do. Raj has the expertise to solve these problems. The downside to this is that there is a political dimension here. He doesn’t really need to worry about ruffling Angela’s feathers in the sense that she’s not there for long, but he does need to concern himself with the rest of the company. If he tries to do this on his own, as a new person, he might be perceived negatively, especially by people who have been with the company a long time and might have had a different relationship with Raj’s predecessor, or by the more creative types who might feel like their ability to be creative and innovate has been stifled.
The second approach is to bring about greater levels of control, but to do so in a way that builds a coalition of department heads, and the “real boss”, Alecia. This approach would manifest itself in Raj discussing the issues with the relevant stakeholders to find solutions to the company’s operational problems that are mutually beneficial. The conversations might be tougher, but they would be more honest in nature than if Raj just tries to implement solutions on his own. He will need to build the right coalitions among the leadership team in order to execute his plan, but there are certain reasons why this will work better.
There are several advantages to this plan. First, he needs to talk to Alecia. She will understand the big picture, because that’s her job. She will be appalled with the financial performance of the company in the last year and will want solutions. She will actually notice that inventory is a big part of the problem and be looking to the inventory guy, Raj, and notice that the problems correlate with his arrival in the company and the time of the prior vacancy. The reality is that the other departments spend the time before Raj was hired and just after when he was getting settled to spread their proverbial wings a bit and test their boundaries. Raj needs to pull them back from that. First, by getting Alecia on board, Raj will be operating from a position of strength. He won’t just be the new guy in the supply chain department, he’ll have the full weight of the “real boss” behind him.
Second, this plan has an advantage in that the controls will be much stronger. Alecia should be providing targets for the department heads, and she can provide targets that orient them towards helping solve the inventory management issue. The department heads will then be instructed to build those metrics into their reports’ quarterly goals as well. For example, if everybody in the company has an inventory reduction target against which they will be measured, that will immediately focus them on inventory. The reality is that the probably have not given much thought to inventory when they were building out their 57 new products. Why would they? They never had any reason to. The fact that excelling at one metric came at the expense of others is not lost on senior management, but on people working the day-to-day, the might not have realized the consequences of taking that sort of unbalanced approach. With new KPIs that reflect inventory management as a corporate priority, they probably will; the culture can be changed.
The third advantage here is that Raj does need to establish SOPs. The company probably was so set in its ways that it didn’t even realize that Angela would do things completely differently. That she received an engineering education in Canada does not make her Canadian, and she is probably entirely unaware of Canadian supply chain management practices. She is ordered how she knows ordering works, but that’s Taiwanese style, not the way that Glide Rite does it. When a company has multiple offices, and a decentralized way of doing something, it needs to have an SOP and some training provided to people who come in from another office, as they will not know the local way of doing things. This would be the case if Angela had come from Ontario instead of Taiwan, because of the decentralized nature of the company. Just her approach is so dramatically different to the norm because of intercultural differences.
The down side to the second option is that Raj will still have to build these coalitions. Theoretically, he is in a position of power, and arrived there because of his ability to do this. However, that might not be the case. In any event, building coalitions and aligning people towards common objectives is what management should be doing, so it’s basically a sink or swim moment for Raj. He needs to succeed at this. The one risk is if he underestimates the politics of the company and his going to Alecia first is seen as a strong negative by people in the departments. For example, if she subsequently reaches out to the to report Raj’s complaints. That would really not be great leadership and would definitely compromise Raj for the rest of his time at the company, but sometimes that stuff happens. Raj should find someone in the company to help him navigate the politics of going over department heads, should he choose to start this discussion with the “real boss”.
Mission and Values
Right now, mission and value statements aren’t all that useful, The vision statement is purely subjective and honestly not worth much at all. The mission is similar â€“ there are no tangible things in these statements for a functional manager to latch onto. They can be interpreted in multiple different ways, to serve multiple different purposes. Raj shouldn’t lose sleep over these.
Transformation of Supply Chain
Both of these alternatives contribute to the transformation of the supply chain into a strategic department. The status quo for the supply chain is that it needs this transformation, because problems with supply chain management are having a negative impact on the company’s overall financial performance. Raj is in a position where his solution can and should get all managers throughout the company thinking about supply chain supports financial goals, by way of efficient inventory management. By linking supply chain and department objectives, the strategic nature of supply chain as a department that facilitates both innovation and profits is going to start to be baked into the organizational culture. When supply chain is an afterthought, it is not strategic. When the entire company has to think about how supply chain affects results, and they have key KPIs tied to that, then supply chain’s transformation to being strategic has begun.
Meeting Target KPIs
The two alternatives suggested are different ways of going about achieving more or less the same thing, which is to get these target KPIs back on track. Whether Raj is centralizing control over all matters supply chain, or working with the different departments to bring about supply chain metrics and thinking about inventory, the end result should be a reduction in inventory, and greater cost control over the supply chain, while maintaining the company’s ability to innovate. The only difference is that the first alternative will be entirely on Raj’s ability to execute and repeated while the second alternative engages the entire company on the effort, and builds it into the culture .Both approaches will get the KPIs in line, but the second approach will do it on a sustainable basis.
Long Term Growth and Profitability
As noted above, the second alternative does better in terms of creating a sustainable culture of strategic supply chain management. The first would succeed in the short run â€“ in fact it’s more likely to succeed in the short run â€“ but would be entirely dependent on Raj. It is not sustainable. Even if he builds SOPs and the like, the reality is that if supply chain management becomes mistrusted, or a dirty word, or a necessarily evil, things will change when Raj leaves because there has been no culture change. The second alternative shifts the thinking throughout the entire organization, and ultimately is the one that provides the best potential for positive contribution to long-term growth and profitability.
I feel that both alternatives do right by the key stakeholders on a functional level, though there might feel like for some managers that they had their hands slapped if Raj makes a strong move to centralize supply chain management. The reality is that the second alternative is more based on the principles of stakeholder engagement. Because of this, it is more likely that the interests of all stakeholders will be more accurately reflected in the solution. They will have the opportunity to engage in two-way dialogue with supply chain in order to arrive at mutually beneficial solutions, instead of having a solution dictated to them that might work, but be suboptimal, where their needs are concerned. The second alternative is much stronger on this point.
The recommendation therefore is the second alternative. This approach â€“ based on stakeholder engagement â€“ is the stronger of the two. It has fewer weaknesses, and greater upside potential. Where the first alternative might be effective at returning the company to hitting its KPIs in the short run, it will not necessarily be sustainable, and will not put the company in a position to exceed its KPIs.
The second alternative, on the other hand, is not only sustainable if executed properly, but because of the strategic SCM nature of it, provides an opportunity to actually rethink key processes. This could improve the supply chain to the point where the current KPIs are consistently beaten, and new KPIs will need to be established. The great thing about a broken process is that it provides the opportunity to completely rethink a process for the current time, and that could end up leading to far more creative solutions, especially if the interests of other stakeholders has changed significantly in that span.
Much of the implementation plan has been discussed â€“ in a sense the both sets of alternatives were the implementation plan because obviously the strategy is to fix the lack of control and process in supply chain management. The use of Alecia’s formal power serves to motivate the different stakeholders, bringing their engagement to a higher level than if it was “the new guy” asking. The subsequent use of new KPIs serves to motivate and control â€“ if departments are not working with Raj on better processes, then that department will be the one with poor KPIs, and allow senior management the opportunity to address the issue with the specific department causing the problem. This also takes some of the onus off of Raj when inventory levels spike. It would also be recommended that the company has better information systems and data to help make stronger decisions â€“ there should be a high level of visibility throughout the company as to what is going on with inventory and supply chain management, and that will help each department or functional manager to address the issue because they will be aware of the issue on a frequent or even perpetual basis.
Glide Right Inc. Case study, in possession of the author
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