Enterra Insights

Entrepreneurs, Medium-Sized Companies, and the Global Supply Chain

Every entrepreneur hopes that his business will grow and succeed. When growth does occur, a "start-up company" eventually outgrows that label to become a medium- or larger-sized business. Scaling a business successfully, however, is not as easy as it may first appear. Bradford Shimp believes that "every business should be built to scale." ["Business Scaling Ideas for Small Business," allbusinessanswers.com, 21 April 2010]. He continues, "You want to have the ability in place to grow rapidly, even if you are currently a small operation. I think that being able to scale means you have to take measures right now to make it possible later." He then goes on to provide a few suggestions:

"Use a Wiki to Document All Business Procedures -- Having your business procedures and systems well-documented is a key step for scaling. A wiki is simply a software tool that makes it easy to document information. You can give out access to the wiki to key employees so they can document their own procedures. You can then review procedures yourself and make changes. Even if you are the only employee, starting with a wiki will make it easy for future employees to access procedures and upgrade them along the way."

There are no standard measures that people can use to classify businesses as small, medium, or large. Two traditional ways are by looking at how many employees a company has and/or by measuring how much annual revenue a company generates. Some organizations use a combination of those measures. One CEO I read about indicated that as soon as his employees needed name tags at company get-togethers he knew his enterprise had crossed the divide from small- to medium-size. I raise the issue of name tags because it bears on Shimp's point that you should design a business for good communications among employees from a start-up's earlier stages. His next recommendation deals with revenue.

"Hire an Accountant Early -- It is important to hire the right people all throughout your growth as a business, but one of the most important hires is an accountant. You don't have to bring one in full time. Just find an accountant who understands business and can help move yours forward. Understanding the numbers will help you make the right choices as you go along, and having a firm financial foundation to your business will make it very scalable."

As most entrepreneurs soon realize, raising capital is a time-consuming and difficult job. It becomes nearly impossible if you don't have good financial statements to back up the story you are telling potential investors. Investors want to know that the money they provide is going to be handled responsibly.

"Record All Training -- Anytime you do any kind of training, record it. I don't care if you write it down or use the family video camera. Just make a record of it. That way the next time you need to train, it will be more streamlined and consistent. Plus, if you take off and grow really fast, you will already have important training materials in place and will not have to personally be there every time."

Entrepreneurs often overlook the importance of training. The larger and faster a company grows the more important training becomes. If you want your products or service to achieve a certain standard, then you must train to that standard.

"Learn How to Measure -- This is a big one. What you want to do is find the measurements that speak to your business's health and wellness. Watch a few key metrics to spot troubling trends and to help you keep the business on track. This habit will become especially important as you get more removed from the daily grind. Determining what to measure takes trial and error. For one business, it may be number of leads in the pipeline. For another, it may be online conversion rate. For a third, it could possibly be the number of walk-ins at the store. It is important to find the measurements that most directly relate to future success (so last month's sales numbers aren't always the most helpful). There is some good advice on this topic in Mike Michalowicz’s The Toilet Paper Entrepreneur."

Knowing what to measure is also important as you try and make your business case to potential investors.

"Incorporate -- Yes, it costs money. But protecting your business with a legal entity, a corporation, S corp, or LLC, is the right move. In rare cases a partnership makes sense (an LLC will probably be better), but avoid staying a sole proprietor for too long. By making your business a legal entity, you get the legal protection of separation from your personal finances and liabilities. There are also many financial and tax advantages. This is something you need in place if you are ever going to scale your business. I suggest reading Incorporate and Grow Rich to learn more about the options and benefits."

I agree entirely on this point. There are a number of firms that have cropped up that can help you fill out the necessary paperwork to incorporate. If you want more personal advice, employ a good business lawyer.

"Maintain a Database -- Your business runs on information. The less information that is stuck in your head, the better off your business will be. I already mentioned cataloging procedures and training. You really should catalog everything. The main use of a database is to store customer information. Get in the habit early of recording everything. This includes emails, phone conversations, preferences, and more. Build up strong information about your customers." For this, you will want to use a CRM, which stands for customer relationship manager. A good one will help you maintain information on your customers and sales without too much hassle."

In numerous posts about supply chain management, I have stressed the importance of collaboration up and down the supply chain. This collaboration most often takes the forms of information sharing. If you don't have information to share you could become a liability rather than an asset to your customers.

"Systematize Relationships -- This may sound cold, but it is in your customer's best interests. It also goes hand in hand with using a CRM. You need to find a way to maintain a personal touch with customers, no matter how large you grow. So build in things like customer surveys, thank you notes, social media connections, etc. Take a look at how you handle customer relationships now and work to improve on it while also building a system to maintain your approach no matter how large you grow. One of the worst casualties you can have if you grow fast is your customer service. Building systems now will ensure that you maintain good relationships as you move forward. A good book on this topic is Exceptional Service, Exceptional Profit."

For more on this topic, read my post entitled Improving Customer Service.

"Segment Responsibilities -- Early on, you do all of the jobs. Maybe now you have a handful of people doing multiple jobs. You can't just go out and hire everyone you would like to hire right away. What you can do is start to map out responsibilities. Create the job position before you fill it. If you handle five different things, start to think of them as five different jobs. Come up with descriptions for each job. As you grow, you will be able to easily plug people in, as well as separate yourself from the job. Without planning this out, there will be bumps in the road as you figure out responsibilities after your hire. Check out E-Myth Revisited for great advice on this topic."

As I have noted in the past, assembling a good team around you is critical if you want your company to grow. Scaling a business is not important to company founders and investors, according to Andy Grove the former Intel CEO, scaling businesses is even more important to national economies. Economic growth relies on the creation of new business sectors in which thousands of new jobs are created in a very short time. He believes the focus of discussions about start-up enterprises should to be on the back end of entrepreneurship rather than the front end. ["How America Can Create Jobs," Bloomberg BusinessWeek, 1 July 2010]

Let's assume you've done everything right and now find yourself running a medium-sized company. What next? The Economist recommends looking at Germany where, the magazine claims, "80% of the world's medium-sized market leaders are based." ["Mittel-management," 25 November 2010] According to the article, Germany must be doing something right. "Germany is the world’s largest goods exporter after China despite high labour costs and a strongish euro. It is also stuffed full of durable companies that have survived hyperinflation and two world wars." In Germany, medium-sized companies are labeled Mittelstand. The article continues:

"Although the term Mittelstand is sometimes applied to quite small, parochial firms, the most interesting ones are rather bigger and more outward-looking. Most shun the limelight: 90% of them operate in the business-to-business market and 70% are based in the countryside. They are run by anonymous company men, not hip youngsters in T-shirts and flip-flops. They focus on market niches, typically in staid-sounding areas such as mechanical engineering rather than sexy ones like software. Dorma makes doors and all things door-related. Tente specialises in castors for hospital beds. Rational makes ovens for professional kitchens. This strategy helps them avoid head-to-head competition with global giants ('Don't dance where the elephants play' is a favourite Mittelstand slogan). It has also helped them excel at what they do."

Although some pundits are concerned that globalization is retreating (see my post entitled Is Globalization Retreating?), The Economist reports that "globalisation has been a godsend to these companies: they have spent the past 30 years of liberalisation working quietly but relentlessly to turn their domination of German market niches into domination of global ones. They have gobbled up opportunities in eastern Europe and Russia. They have provided China's 'factory to the world' with its machine-tools." The article admits that some people worry that the Mittelstand model "will eventually become the victim of globalisation [as] emerging-world companies ... learn to produce their own clever machines at a fraction of the cost." This may occur, it claims, because "Mittelstand companies are too conservative." Nevertheless, the article concludes: "The Mittelstand is likely to keep powering Germany's export machine for years to come." So what are lessons to can be learned from the Mittelstand model? The articles asserts that there are three general lessons:

"First, you do not need to try to build your own version of Silicon Valley to prosper; it is often better to focus on your traditional strengths in 'old-fashioned' industries. Second, niches that appear tiny can produce huge global markets. The third lesson is that Western companies can preserve high-quality jobs in a vast array of industries so long as they are willing to focus and innovate. Theodore Levitt, one of the doyens of Harvard Business School, once observed that 'sustained success is largely a matter of focusing regularly on the right things and making a lot of uncelebrated little improvements every day.' That is a lesson that the Germans learned a long time ago—and that the rest of the rich world should take to heart."

Supply chain analyst Bob Ferrari says that the tenets outlined in the article "have lots of applicability for supply chain management readers." ["Small and Medium Business Best Practice Can Come from Germany," Supply Chain Matters, 3 December 2010] He explains how the three lessons noted above can be viewed through the supply chain perspective:

"First, each company needs to build its own center of innovation, even when that innovation is within traditional industries. The focus is on constantly understanding customer needs and building increased value, whether product or services related. Second, niche markets can be huge on a global scale, since multitudes of niche sales do add to a larger number. The unstated premise, however, is that a global market requires global distribution, service and fulfillment capabilities. That also implies more savvy capabilities in leveraging available technology or utilizing global distribution and logistics specialists. The final lesson is that small and medium businesses can indeed be an engine of employment growth, providing that they each have an unwavering focus on operations excellence and continuous improvement in every process. [In a previous commentary Ferrari noted that a MPI funded study of U.S. regionally based SMB's noted over 50% of respondents indicating not having any direct focus on global business activities. The study also noted that] 57% of respondents reported no organized measurement systems or reviews, with only 17% indicating regular monitoring and review of operations metrics with the CEO, senior staff, or key customers and suppliers."

For entrepreneurs who envision their companies becoming medium-sized or larger businesses, these lessons should be taken to heart. William Shakespeare reminded us centuries ago, "All the world's a stage, and all the men and women merely players." If you don't see the world as your stage, you may not be a player in the future.

Wal-Mart Looks to Expand Outward and Inward

Because of the impact Wal-Mart has in the marketplace, reporters and analysts watch its activities closely. Over the past few months, the company has been making headlines for its expansion plans. Wal-Mart's international business accounts for nearly a fourth of the company's $405 billion in annual revenue. Perhaps the most closely watched plans have been those involving its dealings with a South African retail chain called Massmart ["Wal-Mart Checks Out a New Continent," by Robb M. Stewart, Wall Street Journal, 26 October 2010]. Massmart was founded in 1990 and now owns a series of chains including: Game general-merchandise stores, Makro warehouse-club stores, and Builders Warehouse for construction and home improvement. Stewart reported:

"Wal-Mart Stores Inc. is considering making a 32 billion rand ($4.63 billion) bid for Massmart, which operates warehouse-sized stores that sell goods ranging from food and liquor to clothing, gym equipment and home furnishings. Wal-Mart is now in its fifth week of conducting due diligence on Massmart. Executives are inspecting each of Massmart's 288 stores, which are located in 14 African countries, though mostly in South Africa. If the company proceeds with a formal offer, the acquisition would be the Bentonville, Ark., retailer's biggest in more than a decade. It would also give Wal-Mart a head start in sub-Saharan Africa over European rivals Carrefour SA and Tesco PLC, which don't have any stores in the region."

Not everyone in South Africa was thrilled to hear that Wal-Mart might be coming to town. The most open critics of the plan, however, were labor unions ["Union Opposes Wal-Mart Purchase," by Robb M. Stewart, Wall Street Journal, 29 September 2010]. Stewart reported:

"The Western Cape provincial arm of the Congress of South African Trade Unions said Tuesday it was alarmed that Massmart is considering an offer from the Bentonville, Ark., retail giant to take over one of the country's 'key strategic national companies.' 'We will oppose the setting up of any Wal-Mart stores in the Western Cape,' said the group, known as Cosatu. 'These companies are notoriously antiunion and antiworkers' rights.'"

Wal-Mart executives hoped to convince union members that their perceptions are untrue. Stewart continues:

"Doug McMillon, president and chief executive of Wal-Mart International, said the company would work with the unions representing workers at Massmart's operations. 'We respect and honor pre-existing union relationships and are committed to abiding by South African labor laws,' Mr. McMillon said. A Wal-Mart spokesman said the company has successful [union] relationships in more than half the countries in which it operates. In China, nearly 70% of the work force is represented by a labor union."

Stewart explained that the reason Wal-Mart is interested in South Africa as a portal country for the African continent is because "South Africa has embraced shopping malls. They dot cities, suburbs and, increasingly, the townships where a new and increasingly affluent black middle class has emerged over the past decade. In townships like Soweto, in southern Johannesburg, megamalls have largely displaced street traders." Just when it looked like its Massmart acquisition was progressing nicely, news emerged that Wal-Mart was re-thinking its plans ["Wal-Mart Reassesses Massmart Bid," by Robb M. Stewart, Wall Street Journal, 29 October 2010]. Stewart explained why Wal-Mart was reconsidering it offer:

"Rather than seeking a full takeover, Wal-Mart Stores Inc. may make an offer for control of Massmart Holdings Ltd. to preserve the South African wholesaler's Johannesburg listing. In a statement Thursday, Massmart said that Wal-Mart is now weighing a partial offer for more than 50% of the company after meeting with major Massmart shareholders and key South African stakeholders about its proposal to buy the African retailer for 32 billion rand ($4.53 billion). The Bentonville, Ark.-based retail giant is investigating the merits of retaining Massmart's listing on the Johannesburg Stock Exchange, Massmart said. The indicated cash-offer price remains 148 rand a share, it added."

A Financial Times report concerning Wal-Mart's new position stated that "some major shareholders had told Walmart they would insist on retaining reduced stakes in Massmart, to 'reap the benefits' of anticipated faster growth following the takeover" ["Walmart rethinks $4.6bn Massmart deal," by Simon Mundy, 28 October 2010]. Mundy reported that Wal-Mart's Mexican subsidiary provides a precedent for this new position (Wal-Mart only owns 68% of Walmart de Mexico). He continued:

"The Arkansas-based retailer is keen to pursue further growth in emerging markets, having expanded aggressively in China and Latin America. Massmart has a particular focus on Nigeria, although 93 per cent of its revenue is generated in South Africa, where it has 290 stores. Most of Massmart’s listed equity is held by international investors, but big domestic shareholders include the state pension fund. 'The government would be delighted if Massmart remains listed,' [Syd Vianello, analyst at Nedcor Securities], said. A partial takeover could limit Walmart’s financial support for Massmart, as well as anticipated procurement savings."

After considerable negotiation, the Wal-Mart/Massmart deal was concluded in late November 2009 ["Wal-Mart Sets African Offer," by Robb M. Stewart, Wall Street Journal, 30 November 2010]. Stewart reported that "Wal-Mart Stores Inc. offered 16.5 billion rand ($2.32 billion) to buy 51% of South Africa's Massmart Holdings Ltd., marking the U.S.-based retailer's first foray into sub-Saharan Africa's growing retail market." In the article by Robb Stewart first cited in this post, Stewart notes that "Wal-Mart hasn't always managed to get its expansion into new markets right." He explains:

"In 2006, it had to abandon its German operation after spending eight years trying to crack one of Europe's most competitive discount-retailing environments. Last decade, it pulled out of South Korea. Wal-Mart opened its first store in mainland China in 1996. In a country mired in bureaucracy, it has had to navigate a commercial environment that favors local companies and a distribution system closed to foreign firms. The retailer has also stumbled on its own, with failed efforts in its early days to sell extension ladders and a year's supply of soy sauce to customers living in tiny apartments. In India, where it plans to use its discount, big-store model to capture a slice of a retail market that has annual sales of more than $350 billion, Wal-Mart has been waiting for years for the government to ease restrictions on foreign investment in the retail sector. There, it must also compete in an industry made up of small merchants."

Undoubtedly, Wal-Mart executives have been frustrated by India's bureaucracy. In "a rare high-profile plea to the Indian government," Mike Duke, the chief executive of Walmart, asked that the country’s retail sector be opened to direct foreign investment." ["Walmart urges India to open up retail sector," by Jonathan Birchall and Girija Shivakumar, Financial Times, 26 October 2010] Birchall and Shivakumar continue:

"Mr Duke told a meeting of the Federation of Indian Chambers of Commerce and Industry in New Delhi that Walmart, the world’s largest retailer, understands the government’s 'calibrated approach' to the opening of the sector. But he repeated the argument that allowing international retailers to own and operate their own stores would bring a range of benefits to India, including the modernisation of food distribution and the growth of small and medium supplier businesses. Currently, foreign investment is restricted to 51 per cent in single-brand retail and is barred entirely from multi-brand retail."

Wal-Mart's arguments have received some support from within the government. Birchall and Shivakumar explain:

"An Indian government discussion paper published this year said that allowing greater foreign investment in retail would lower prices and benefit farmers. Mr Duke said Walmart estimated that 'certain increases in direct foreign investment are likely to reduce India’s inflation rate 50 to 70 basis points', from more efficient logistics and reduced waste. Walmart’s presence in India is currently limited to four 'cash and carry' Best Price stores it has operated in a joint venture with Bharti Enterprises, a local business group, opening the first store last year. Mr Duke said the joint venture planned to have between 10 and 15 stores open over the next two years, although Rajan Bharti Mittal, managing director of Bharti Enterprises, said his company could roll out 15 new stores 'ahead of time' by the end of next year. As part of the retailer’s efforts to win political support in India, Mr Duke highlighted plans to source fresh fruit, vegetables and meat for the stores directly from 35,000 small farmers."

With organized retail accounting for only 5 percent of the total retail business in India, one can easily understand why Wal-Mart sees opportunity knocking there. In addition, "AT Kearney, the US management consultants, forecast that India’s growing middle class among a 1.2bn population would help push retail sales up by 35 per cent over the next three years." The growing middle classes in India, China, South Africa and other emerging market countries are behind Wal-Mart's push to get into those countries ["Walmart's S African ambitions show need for foreign growth," by Jonathan Birchall, Financial Times, 28 September 2010]. Birchall explains:

"For the world’s largest retailer the proposed expansion ... underlines an increasing focus on pursuing international growth that has become increasingly important over the past few years, as growth in its home market has slowed. With total sales last year of just over $400bn, Walmart has seen its international store footprint grow faster than in the US since 2007, as the recession and an increasingly saturated home market slow the expansion of its US super-centre stores. It already has stores in 14 countries around the world, and its international revenues account for just over 25 per cent of its total sales, up from just over 20 per cent five years ago. Asda remains its largest and most profitable international business, while its business in Japan continues to struggle. But after pulling out of South Korea and Germany in 2007, the retailer has increasingly focused on growth in emerging markets."

Birchall goes on to note that as Wal-Mart expands internationally it is looking "to unify its global supply chain to improve operating performance of its international stores, which are less profitable than its US business." Wal-Mart will have to focus on more than just its global supply chain. If, for example, it obtains its desired foothold in India and follows through on promises to source fresh fruits and vegetables from local growers, the company will have to focus on regional and local supply chains as well. Wal-Mart now operates in 14 countries outside of the United States.

In other expansion efforts, Wal-Mart is reportedly looking for expansion opportunities in Japan ["Wal-Mart Bargain Shops for Japanese Stores to Buy," by Mariko Sanchanta, Wall Street Journal, 14 November 2010] and Canada ["Wal-Mart's New Hot Spot: Canada," by Stuart Weinberg and Phred Dvorak, Wall Street Journal, 27 January 2011]. It also continues to increase its presence in China and "will have around 300 stores [there] when it completes its takeover of the Trustmart chain." The company also "entered the country’s e-commerce business" by launching www.samsclub.cn, which is "linked to the handful of Sam’s Club discount warehouses that it operates in southern China." ["Walmart finds online ally in China," by Jonathan Birchall, Financial Times, 27 December 2010]. It is also trying a "small strategy" in China that has worked elsewhere ["Walmart slims down stores for China," by Jonathan Birchall, Financial Times, 1 December 2010]. Birchall reports:

"Walmart, the world's largest retailer by sales, is launching a push to reach lower-income and rural consumers in China with a new 'compact hypermarket' format originally developed in its Latin American markets. Doug McMillon, chief executive of Walmart's international business, told the Financial Times that the US retailer had opened what is expected to be the first of a series of new stores in China using the low-cost, bare-bones model of its Bodega Aurrera stores in Mexico, and its Changomas chain in Argentina."

In addition to expanding outward (i.e., globally), Wal-Mart is also looking to expand inward in the United States. Plans to do this involve creating small city stores -- a big change from the suburban super stores for which Wal-Mart is best known ["Wal-Mart Sees Small Stores in Big Cities," by Miguel Bustillo, Wall Street Journal, 13 October 2010]. Bustillo reports:

"Wal-Mart Stores Inc. is planning to open dozens of small stores in the nation's cities, in an effort to push back against the dollar chains and other competitors nibbling at its customers. The prospect of Wal-Mart stores dotting America's biggest cities would change the urban landscape and the profile of the world's largest retailer, known for its blocky suburban edifices stocked with low-cost goods. The new stores, roughly a quarter to a third the size of a supercenter, largely will sell groceries. Bill Simon, head of Wal-Mart's U.S. stores business, said Wal-Mart envisions opening in the next few years 30,000- to 60,000-square-foot Neighborhood Market groceries and new, smaller outlets modeled on the bodegas it operates in Latin America. Its supercenters average 185,000 square feet. Mr. Simon said he believes there is room for 'hundreds' of small Wal-Mart stores in the U.S., offering food and consumer staples. The retailer first will test their urban appeal with 30 to 40 stores over the next few years before a full-scale launch."

In what should be good news for some cities, Wal-Mart is looking "at taking over existing buildings" according to Garrick Brown, a vice-president of research at Colliers International ["Walmart lines up sites across US to roll out smaller format stores," by Jonathan Birchall, Financial Times, 20 September 2010]. According to Brown, real estate brokers are saying that Wal-Mart is "looking for scores of sites across the US. 'It is going to be huge,' he said." According to Birchall, "Walmart’s small-format ambitions will open a new competitive front in its battle with the traditional supermarkets such as Kroger and Safeway." To learn more about competition in the grocery sector, see my posts entitled Supermarket Wars.

The advent of hundreds of new small, urban s stores will require Wal-Mart to re-wicker parts of its logistics system. In addition, the company is partnering with FedEx in an experiment to see if it can increase urban sales by permitting customers to buy merchandise online and have it delivered to FedEx retail locations ["Wal-Mart Uses FedEx to Expand Urban Push," by Miguel Bustillo, Wall Street Journal, 20 September 2010]. Bustillo reports:

"Wal-Mart Stores Inc. is experimenting with allowing customers to buy merchandise online and have it delivered free to urban FedEx Corp. locations, a bid to boost sales in big cities where the retailer has little to no store presence. The tests, which started this summer in Los Angeles and Boston, allow customers to direct purchases made on Walmart.com to FedEx Office outlets at no cost, mimicking a Wal-Mart offering called Site to Store that lets online buyers send items to the retailer's stores free."

According to Bustillo, customer response to the program has been positive, but Wal-Mart has not announced plans to expand the program. Bustillo continues:

"Some retail experts said it seemed like an inevitable next step for the Bentonville, Ark. retailer, which has struggled to expand into America's largest cities amid political opposition from labor unions. Wal-Mart sales have declined for five consecutive quarters at U.S. stores open at least a year, and the company is searching for new ways to spark domestic growth. 'This is Wal-mart trying to extend its footprint without investing capital in real estate,' said Leon Nicholas, a Massachusetts-based director of retail research at Kantar Retail. He said Wal-Mart also is pursuing younger urban shoppers, who don't think twice about making big purchases online. 'They don't want to be the next Montgomery Ward, so they have to go after the Millennials where they are,' he said, referring to the chain that went out business in 2001 and whose brand was later revived as an Internet retailer."

Bustillo notes that consumers still have the option have online purchases shipped directly to specified locations using either FedEx or United Parcel Service, Inc. He continues:

"The partnership could allow FedEx to capitalize on its locations near college campuses it inherited when it acquired Kinkos in 2004. In L.A., Wal-Mart has been promoting the pickup program with direct mail to students at the University of Southern California and mobile billboards around Westwood, home of the University of California, Los Angeles. Wal-Mart and FedEx officials declined to reveal the financial details of the partnership. 'We fully expect other large retailers to take advantage of this,' said Randy Scarborough, vice president of marketing for FedEx Office. He said the shipping giant recently began a new store-pickup service from FedEx Ground that previously had been available only on faster shipments from FedEx Express. FedEx has 1,800 U.S. locations that can serve as pickup spots. He declined to name other retailers. 'We are planning our physical network to accommodate this because we do anticipate additional demand.'"

Wal-Mart's outward and inward expansion is likely to send ripples through a number of supply chains. The largest impact, however, is likely to affect supply chains that service emerging and growth markets. With markets mostly saturated in developed countries, rising middle classes in emerging and growth market countries represent real opportunities for retailers as well as the manufacturers who supply them their goods.

Enterra Solutions Selected as an Editor’s Pick by Consumer Goods Technology

Enterra Solutions, LLC, has been selected as one of 25 companies featured in the Editors’ Pick section of CGT's 2011 Readers’ Choice Issue. This benchmark issue draws on feedback from consumer goods executives to rank service and solution providers in the following categories: Supply Chain Execution, Supply Chain Planning, CRM, TPM, ERP, New Product Development and Introduction, Business Intelligence, Demand Data Analytics, Consulting, and Outsourcing. The magazine notes that "some companies do not fit snugly into any one group due to their size or focus. In response, CGT created the Editors' Pick section to recognize companies that are making a respectable impact in the industry and should be duly noted."

"Enterra Solutions grabbed our attention for co-developing a retailer compliance system with Conair Corporation, which won a CGT Supply Chain Outstanding Achievement Award for the project in October 2010," noted Alliston Ackerman, Editor of CGT. "The company was selected as an Editors’ Pick in 2011 for filling a need in the enterprise software market for a solution to manage the supply chain requirements of different retailers. We look forward to following Enterra Solutions in its future endeavors."

CGT (Consumer Goods Technology) magazine is the leading resource for consumer goods executives looking to improve business performance. Delivering content in print, online, and face-to-face, CGT reaches an audience of more than 54,000 consumer goods executives ranging from managers and directors to the VPs and CIOs. CGT also covers all major segments of the consumer goods sector, including Food, Beverage, Packaged Goods, Consumer Electronics and Footwear. For more information on CGT, visit http://www.consumergoods.com.

Enterra was selected for this recognition for developing the Enterra Supply Chain Assurance Platform™ (ESCAPE™). We are extremely honored to receive this approbation. Our Enterra Supply Chain Assurance Platform has attracted significant interest from consumer packaged goods manufacturers since we created it in partnership with the Conair Corporation.

ESCAPE complements a company's existing management and technology architecture to optimize its supply chain operations. It does this by identifying orders at-risk of violating retailer-imposed supply chain requirements, as well as those that have the potential of encountering product unavailability issues. It monitors retailers directly to keep requirements current, accurate and complete; and carriers to track shipping not only to retailers but also from suppliers. To learn more about ESCAPE, read my post entitled Reducing Retailer Compliance Penalties and 2010 Council of Supply Chain Management Professionals (CSCMP) Annual Conference.

Enterra is continuing to develop ESCAPE modules that will help clients effectively manage their supply chain management challenges. One of the reasons that ESCAPE has been received so well is that numerous supply chain professionals have recognized that "increased visibility is vital to successfully managing global inbound transportation" ["You Can No Longer Be Blind to Shipment Details in Inbound Transportation Pipeline, Report Finds," Aberdeen Group, 18 October 2010]. The article, which discusses the primary conclusion of an Aberdeen Group report, continues:

"The report, International Transportation: Optimize Cost and Service in a Global Market, documents processes and capabilities of 181 companies surveyed between June and July 2010. 'Customer demands for high delivery performance, and the increased demand for accurate delivery status information are driving the need to ensure shipment integrity and enhance internal and external communications across the entire supply chain. In the past, many organizations were blind to shipment details within the transportation pipeline,' said Bob Heaney, senior research analyst of supply chain management at Aberdeen."

Portions of the ESCAPE platform help increase visibility of inbound deliveries so that decision-makers are both alerted to potential problems and have more time to correct or mitigate those problems. The article concludes:

"The focus of the report is on companies that have realized the significance of gaining more visibility and control of inbound transportation. These companies have looked beyond their internal capabilities and systems and have successfully partnered with a solution provider or a managed services provider to enhance their processes. The research findings and case studies presented underscore the value and growing relevance that dynamic supply chain optimization capabilities, and near real-time visibility to detailed supply chain events play in successfully managing inbound transportation."

Although Enterra has been recognized for its work in supply chain optimization, the same technology that permits us to help optimize supply chains can be used to optimize processes in other business sectors as well -- as shown in the attached graphic:

We describe ourselves this way:

Enterra Solutions, LLC, is an integrated information technology and management consulting services firm focusing on the application of advanced "rules-based" technologies to solve the complex business problems of commercial organizations and governmental agencies. The company's Advanced Enterprise Management System™ includes two core proprietary capabilities: a leading edge technology entitled Rule Set Automation (RSA) – Enterra's proprietary technology for translating business rules into data which express themselves as agile software code and business processes; and, a patented Enterprise Resilient Management Methodology™ (ERMM™) – a system diagnostic methodology for assessing the resilience of enterprises to performance, security and compliance demands.

Rule Set Automation and the use of artificial intelligence techniques are at the heart of Enterra's business model. I have a very talented team at Enterra Solutions that make the magic happen and I'm thrilled that I can now call them an "award winning" team.

ERP and the Future of the Supply Chain

Supply chain analyst Lora Cecere reports that around 2003 a vision emerged "of an integrated end-to-end supply chain brought to life through extended ERP platforms." She goes on to report, "It has failed." ["Reflections: The End of a Decade in Supply Chain Management," Supply Chain Shaman, 7 July 2010]. She doesn't, however, blame Enterprise Resource Planning software for companies failing to achieve the vision of an integrated end-to-end supply chain. She notes that the handful of companies that have achieved the vision (or at least come close) use "ERP for transactional systems; but ERP is not the extended backbone to enable the end-to-end supply chain." Before examining Cecere's explanation of why she believes most companies have failed to implement an integrated end-to-end supply chain, I'd like to talk about some of the challenges that other analysts associated with ERP have identified. Perhaps the greatest challenge for most companies is cost.

In a post on that subject, John Westerveld notes that "the high cost of ERP support and maintenance" has resulted in several companies opting out of renewing support or upgrading their ERP platforms ["Perpetual ERP software – a broken model?," The 21st Century Supply Chain, 2 December 2010]. He continues:

"A quick search on Google brings a wealth of articles talking about the cost of ERP ownership. ... These give you a good idea as to the state of affairs with ERP support and maintenance. An article by Thomas Wailgum at CIO.com brought this issue into focus. In this article Wailgum discusses a concept from a Gartner report called 'Global IT Debt'. As Gartner defines it, global IT Debt is 'the cost of clearing the backlog of maintenance that would be required to bring the corporate applications portfolio to a fully supported current release state.' According to Gartner, the Global IT Debt will total 500 billion in 2010 and has the potential to jump to 1 Trillion by 2015. The Gartner announcement points out that the most worrisome issue is that many IT organizations don't have an application inventory or a structured application review process which means that IT management isn't aware of the extent of the problem."

Westerveld isn't arguing that software upgrades and support aren't important. After all, he writes, "Working for a software company [Kinaxis], I understand the importance of support and maintenance payments. This money goes to staffing support call centers, tracking down and fixing bugs and to funding research and development into new capabilities that will ultimately provide additional value to customers." He continues:

"In our case, however, we provide an on-demand service that includes support and maintenance in the monthly payment. Of course as a subscription service you incur little upfront costs so the monthly payment seems far more reasonable. The old ERP model of perpetual, on-premises licensing adds insult to injury by demanding a staggering up-front price and 'extortion like' annual support and maintenance costs. At some point (and it's starting to happen), companies are going to say enough is enough and start to look for alternatives."

One of those alternatives, Westerveld notes is "software as a service (SaaS, or on-demand) model." He claims that model is gaining momentum and that his company's clients seem pleased with it. He concludes:

"When we first introduced our on-demand offering in early 2006, customers would often express great concern over data security and system availability. Today, after years of proven performance and security both with our software and with other SaaS companies like Taleo and Salesforce, most prospects don't even ask about on-premise models. Will Big ERP go on-demand? They say they are, but a quick look at what they are offering, it appears to be more of an outsourced model than on-demand. Some companies like NetSuite are delivering ERP for small/medium businesses via SaaS. My thinking is that companies like this will expand upwards and will start taking some of the large accounts away from SAP and Oracle. Time will tell."

In addition to moving toward a SaaS model, many corporate executives believe that ERP and social media functions are headed for a shotgun wedding ["Value of ERP Systems Could Be Enhanced by Embedding Social Media Functions, Study Finds," IFS, 2 December 2010] The article explains:

"A study of more than 260 manufacturing executives released by IFS North America indicates that social media will affect enterprise software used by mid- to large-sized manufacturers and industrial companies. Interest in what IFS is calling Enterprise 2.0, which marries enterprise resources planning with social media functionality is real, the company says. However, study data suggest that integration of ERP with existing social media tools available online is of limited value. Instead, executives saw more value in ERP that mirrored the functionality of social media sites like Twitter and Facebook in order to streamline internal communication. ... The study of manufacturing executives with mid- to large-sized companies was conducted for IFS North America by Boston-based Affinity Research Group. ... The adoption of social media functions to include collaborative and communication capabilities is viewed with importance, but is not seen as a major influencer. There are two primary benefits of social functionality embedded in ERP: first, to streamline and communicate within the enterprise and, second, to document business processes to support lean initiatives."

Although social media functionality embedded in ERP systems would improve internal communications, it doesn't move companies any further towards the kind of integrated end-to-end supply chains that have been implemented by companies like Cisco Systems, IBM, Intel, Nokia, and Wal-Mart. In another post, Cecere writes:

"If you ask nine out ten consultants how to implement an integrated end-to-end supply chain project? The response is start with Enterprise Resource Planning (ERP) as the first step. The beauty of ERP is that it is a pre-packaged, proven solution that improves transactional efficiency. It is effective in automating order-to-cash, procure to pay, and a common code of accounts. No one questions that it has improved enterprise efficiency; however, the most efficient supply chain is not the most effective." ["Dancing with a White Elephant," Supply Chain Shaman, 25 April 2010]

She goes on to note that "supply chain transactional efficiency is a requirement for supply chain excellence, but the conventional hub and spoke ERP architecture with a tightly integrated SCP [Supply Chain Planning] module cannot deliver an integrated end-to-end supply chain." Cecere makes basically the same five points in both of her posts about ERP and integrated end-to-end supply chains. In her latest post on the subject, she writes:

"Consider these five points:

"The extended supply chain cannot be designed from the inside-out: The true design of the end to end supply chain must start from the outside-in. It needs to start with the customer's customer with a laser focus on principle-based outcomes. ERP is designed from the outside-in. The investment in ERP platforms has improved enterprise efficiency; and is a piece of the equation, but is not the connector for the extended supply chain.

"There was no 'R' in CRM or SRM: Unfortunately, there was no there there. What? There was no R– or relationship management– in the definition of CRM or SRM. CRM missed the mark more than SRM on the definition and reinforcement of value in extended relationships. We are just now seeing industry-specific technologies like ModelN for pharma, E2Open for high tech, DemandTec and Terra Technology for Consumer Products start to cross the gap of sensing what is happening in customer’s supply chains. Or the use of unstructured ... technologies for supplier risk management like that in the Open Ratings’ functionality now embedded in D&B software to sense supplier failure. While companies bought into the vision that ERP vendors would build or partner to fill in the white spaces of required functionality, neither strategy has worked. Five years later, the white spaces still remain.

"The extended supply chain is about much more than transactions: ERP improves the efficiency of transactions, but the extended supply chain requires much more. It requires demand sensing and translation capabilities, performance and risk management monitoring and assessments, and near-zero latency information flows.

"We must sense before we respond: Effective extended supply chain architectures have strong sensing capabilities. In end-to-end supply chains, it is important to sense before responding. To listen to the customer response before reacting. ERP platforms are all about the response. In existing architectures, there is little to no sensing or listening capabilities.

"If everyone standardizes, we will get there faster. Yes, but we standardized on the wrong thing. The belief was that if everyone standardized on one ERP platform that it would be easier to connect the extended value chain. What the last decade has taught us is that it is the hard work on data standards that is necessary to drive connections. Having the same ERP brand is largely irrelevant."

Cecere insists that companies need to swallow hard and face facts: "An extended ERP investment does not help you get to the extended end-to-end supply chain goal. Yes, to get there you need strong ERP capabilities; but ERP is not the connector. The connector is the BI [Business Intelligence] layer." She explains:

"ERP helps to build order-to-cash and procure-to-pay and having a common code of accounts for financial reporting; but, leave it at that. Companies that built their own or used best-of-breed planning capabilities have out-performed companies that have standardized on large ERP platform investments. Remember that the people that made the most money on extended ERP investments were the consultants that implemented the systems under the promises of 'invest in these systems and the functionality will come' and '80% is good enough.' To gain insights, network with companies that have done it, and think hard about how you can use new technologies to sense and what drives value-based outcomes in the response. Secondly, focus on stabilizing ERP investments and building Business Intelligence (BI) capabilities. ERP stabilization can take many forms: business process outsourcing, focus on ERP transactional excellence or Software as a Service. Resist the temptation to think that you can get what you need from on vendor. Building end-to-end supply chain capabilities means much more than one throat to choke. When you focus on the BI layer, think about data differently."

Not only do you think about data differently you think about relationships differently. An integrated end-to-end supply chain requires cooperation and collaboration and that means fostering better trust among stakeholders. For a different take on this subject, read Steve Hall's post entitled "Supplier relationships and trust -- too hot and heavy?" [Procurement Blog, 15 October 2010]. As you think about how relationships and data must change, Cecere recommends that you consider three things:

"Own BI in the Line of Business: There is an exciting world of BI dawning. Don't think about BI as it is currently defined, think about new possibilities. Consider how to free the data to answer the questions that you don't know to ask. Ask How to read unstructured text to listen to true customer needs. Learn how to use downstream data to sense demand through the building of demand networks.

"Invest in Innovation: Build sand boxes to enable learning. Consider best of breed providers. Look at the mining of unstructured text inputs to improve supply chain sensing, the use of pattern recognition in customer data to better understand demand, advanced analytics and improved prediction capabilities in optimization, and the linkage of scorecards to value-based outcomes.

"Define new Processes based on Value. Focus outside-in. Put money where your mouth is. Define standards. Make relationships meaningful and actionable. True collaboration only happens when there is a sustainable, meaningful win/win relationship. I had a great discussion with Philippe Lambotte of Kraft Foods on this subject in a taxi on the way back from UConnect. Philippe has put money where his mouth is by defining a program with retailers that enables a menu-list of options that can be used to redefine the relationship for greater value. Knowing that imposing a one-size fits all program on retailers will not work, the program has a menu of options with appropriate discounts. Reward performance against these options based on scorecard performance. Based upon the options selected by the retailer, bracket-based pricing is determined."

In her earlier post on this subject, Cecere concludes, "Let's face it, the major system integrators have made a lot of money selling a false promise. It is time for the good times to end. We have some hard work to do, but our futures depend on it." Obviously, there is hard work to be done by both companies and ERP providers. Cecere's point, however, is that companies should look beyond ERP vendors if they want to achieve integrated supply chain excellence.

Trends in Supply Chain Software

Mary Shacklett, founder and president of Transworld Data, writes, "Supply chain management is adopting cost cutting, optimization, speed of deployment, agility and real-time process information and automation, with 21st century software leading the way—and as the economy begins to rebound, companies are starting to spend on software again." ["Supply Chain Software: The Big Spend," WT100, 1 October 2010]. Shacklett reports that companies are looking forward to growth in the coming years but are also looking warily back at the recession. As a result, she writes, companies are purchasing software that helps them "address both cost reductions and global growth." Most of her article takes "a look at the supply chain software market, what companies are telling their software vendors, and how the supply chain software industry is responding." She continues:

"Across the board, the supply chain industry is seeing a resurgence of buying activity in software. This comes after several tough recession years (2007-2009) in which buying activity literally slowed to a crawl, with companies seeking to 'make do' with what they had. ... Many organizations [now] find themselves in positions where they must update supply chain software that is out of date or at the end of its current life cycle—or they have business concerns that when the economy does come back, they will not be able to ramp up their supply chains with the kind of agility, analytics and efficiencies that will be needed in order to compete."

Shacklett asserts that the present "focus in the supply chain software market is on fundamental functions such as transportation and logistics, product capability and even warehouse upgrades—but above all else, companies are looking at their global supplier networks as a major source of the agility, time to market and cost efficiencies that they hope to gain." Certainly it comes as no surprise that coming out of a recession companies are focusing on fundamentals. Now is not the time to be either fanciful or frivolous. Time and again, however, you hear supply chain analysts talk about the importance of agility, collaboration, and cost efficiency. Todd Walker, Director of Supply Chain Solutions for Exostar, told Shacklett, "Companies are pursuing collaborative networks and platforms for their suppliers. ... These companies are realizing that their existing portal solutions do not provide the flexibility or scalability to meet today’s complex supply chain requirements." Shacklett goes on to describe what she believes companies really want. She writes:

"If companies are going to adopt a supply chain strategy that goes from cost reductions to laying a foundation for economic recovery that doesn't forget about cost, they most definitely are headed for revisions in business processes, software, and corporate thinking. ... [One way to keep costs down yet improve performance is to purchase] supply chain software that can eliminate some of the labor intensiveness in both end business functions and corporate IT. 'Today's systems offer new analytic capabilities that help companies observe market conditions and respond to these conditions quickly,' says [Dwight Klappich, a Gartner supply chain analyst]. 'These analytics also bring efficiencies to processes like labor management.'"

Few supply chains today fail to have some international dimension. With oil prices steadily rising, global supply chains are coming under greater scrutiny. Chad Collins, Vice President of Marketing and Strategy for High Jump Software, told Shacklett, "Regardless of where companies are operating, they are rethinking how their supply chains work." In addition to rising transportation costs, Shacklett reports other challenges facing businesses include:

"Time to market—Time to market is a major factor, especially in extremely competitive industries with high rates of new product introductions (e.g., technology, retail). Supply chain agility and efficiency are central to the process, meaning that companies must have ways to rapidly onboard new suppliers and also have full visibility of supplier orders, from purchase order approval through manufacturing, shipping and delivery.

"Supplier communications and information—In a global market with thousands of potential suppliers, companies need new ways to reach potential suppliers, in addition to being able to rapidly communicate with their existing supplier bases. Social networks are becoming a way for companies to find and communicate with potential and existing suppliers—and also to research them.

"Supply chain streamlining—Organizations that have grown through mergers have found themselves with the burden of managing multiple ERP and supply chain systems that are difficult to integrate into a single platform. A second challenge for these organizations, and also for organizations with a single, internal ERP and supply chain solution, is that the software may be well oiled and integrated for internal business processes, but there are gaps when it comes to fielding software for business processes that occur outside of the enterprise. ...

"Coalescing business channels—Increasingly, retail and banking businesses are consolidating e-tail and brick-and-mortar retail into a single line of business. This requires them to present the same face to the customer, regardless of channel. It also creates impact for the supply chain."

Each of those challenges is worth a post by itself. Because corporations' are focusing on fundamentals and global growth, Shacklett claims that "hot software" includes products dealing with "transportation and logistics, supplier collaboration and communications, inventory management (especially regarding visibility) and cloud-based solutions." She continues:

"In step with expanding and changing global supplier bases is software that both researches and keeps track of suppliers and their activities. This is the major impetus behind companies buying in the area of supplier collaboration solutions that include the use of social networking. ... As part of the supplier management push, companies are also looking for improved visibility of inventory that will simultaneously optimize both cost control and order fulfillment. Software primarily contributes in the areas of inventory visibility and analytics, and in the ability to reallocate inventory to where it is needed, when it is needed."

Most of the challenges described by Shacklett are found in the so-called "white spaces" between software solutions currently being used by companies. Since Enterra Solutions is directly involved in this area (i.e., helping fill in the white spaces), I'm pleased that Shacklett recognizes that software solutions that address this area and provide visibility and analytics are a good investment. Shacklett continues her article by providing a few software trends to watch. She writes:

"Just as companies are making dramatic shifts in their supply chain strategies, software also has to keep pace—and it is. One of the most monumental shifts is a move away from traditional corporate thinking that a high degree of software customization to the business produces competitive advantage. Instead, contemporary thinking is that packaged software in a 'vanilla' form can do an adequate job for the supply chain, as long it incorporates industry-wide best practices. Customization for corporate business processes still occurs, but it occurs via technologies like services oriented architecture (SOA), which splits off pieces of business logic that can be assembled to support any end-to-end business process without altering the core software. ... A second software trend is more built-in capability for analytics that assist managers at different levels of an organization with visibility, reporting, metrics, and analysis of what is (or isn't) going on in the supply chain. Software development is focusing on increased intelligence embedded in the software, as there is a demand for visibility, which can facilitate the accuracy of forecasts. ... The third and most publicized trend is the migration to cloud-based supply chain solutions."

I believe Shacklett is spot on when she describes current software trends. The supply chain solutions we offer at Enterra are agnostic when it comes to the IT platforms they support. They complement rather than replace current programs and processes. Shacklett concludes her article with these observations:

"Supply chain software is in transition, and it is virtually impossible to predict when we will ever again see some of the 'mature' periods of this software that we were accustomed to in the past. Cloud computing will continue to expand as a solution, and may even be an entire end-to-end solution for small- to mid-sized companies. Large enterprises will initially opt to deploy cloud-based solutions where these systems provide the greatest immediate benefit, most notably in the business processes external to the company. Meanwhile, vendors will be asked by companies to provide suites of supply chain software capable of running every area of the supply chain, not just the warehouse or logistics. ... Big deals come with a catch for software vendors, though: companies are comprehensively vetting the software before they purchase. The process includes detailed RFIs and RFPs, demanding SLAs (service level agreements); and pilot tests that run the software against prepared scripts that emulate actual business conditions that the company encounters with its supply chain. This can be challenging for software providers, which must not only survive the initial scrutiny, but continue to produce software with significant enhancements every three months."

Along these same lines, analyst Lora Cecere has posted a blog containing her thoughts about supply chain trends (including software trends to watch). ["Ring in the New Year ..." Supply Chain Shaman, 22 January 2011] She begins her post by noting that she conducted a phone survey of dozens of companies. Some of her observations are a result of that survey. She indicates that the following are the trends she will be watching during the coming year:

"ERP Hangover. As the year progresses, I think that the ERP Hangover will hang over companies like a heavy cloud of dysfunction. In my survey, 23% of the companies surveyed had multiple-year ERP programs extending past 2015. While the ERP programs are the necessary to support global expansion, the organizations are tired. Many expressed frustration at the cost/value relationship of the project and the lack of supply chain innovation by ERP technology providers. In 2011, as inflation rises, budget pressures escalate, and IT costs get squeezed, I expect to see an ERP hangover. ... As a result, large consulting houses that have had a strong dependency on ERP implementations –Accenture, Cap Gemini, IBM and Infosys– will increase their focus on bringing software solutions to market and providing differentiated Business Process Outsourcing Services (BPO). Many companies in the survey were already backing away from the extended ERP vision giving room for new start-ups with innovative approaches to solving supply chain problems to get a foothold. In 2011, I think that we will see a rise of a new niche set of supply chain technology vendors."

This is not the first time that Cecere has written about challenges involved with ERP. Watch for a future post on this subject. She continues with her next trend to watch, which also involves ERP systems:

"End-to-End Supply Chain. Not as easy as an Erector Set. I remember over my many years as an analyst sitting across the desk from many CIOs that would waft-on and on about using ERP to assemble the inter-enterprise supply chain platform. The logic was if all companies had ERP system XYZ then it would be easy to connect ERP to ERP to ERP along the supply chain. It is now clear–even to this set of die-hard CIOs– that this erector-set approach is not going to work. It is just too simplistic. There are three quick stumbling blocks:

• "Data model and system of record. The ERP data model is a back-office data model designed primarily for order-to-cash, revenue recognition and procure-to-pay. Companies are quickly realizing that ERP is not an enterprise data model, and that there is no system of record for changes in compliance, tracking sustainability goals (energy, water and carbon), or multi-party bifurcated trade to support demand shaping activities.
• "Data translation. To be useful, the data layer between companies needs to be harmonized, synchronized and cleansed to ensure data translation. Key areas of emphasis are the product hierarchies, customer master data, calendar definitions, and item attribute information. Without translation, there cannot be the connection of usable data.
• "Connectors. As companies do this work, they quickly find that Supplier Relationship Management (SRM) and Customer Relationship Management (CRM) are inadequate connectors for the end-to-end supply chain. The inter-enterprise supply chain needs a new set of connectors to support supply chain relationships. Look for social networking and community technologies to start to fill this gap."

As noted above, Shacklett also believes that social media is going to have a role to play in the supply chain. Social media also plays a role in Cecere's next trend which touches on another of her favorite topics -- customer service. She writes:

"Listening Posts. How do we listen and then respond? While all agree they should listen to the customer, none have systems–despite the evolutions in technology–to truly listen to customer. Sadly, in companies today, there is no REAL customer service organization. We have an order management group that is often named customer service or we have a service/warranty organization that does service, but less than 1% of organizations surveyed have listening posts to actively listen to their customers and use the voice of their buyers in supply chain decisions. This outside-in approach is most often found in short-life cycle, high margin high tech and electronics goods where companies are using Business Intelligence (BI) tools to synthesize consumer sentiment from reviews, social media networks and blog posts. I find this shift exciting and plan to follow it closely over the course of 2011. It is ironic that supply chains want to serve the customer, but have no real way to listen and then drive the response."

Since Cecere believes that listening is important, you won't surprised to learn that she believes that sensing and responding are just as important. In fact, those are the next trends she will be watching during the coming year. She writes:

"Sensing. How do we sense and then respond? 99% of the supply chain effort in today’s supply chain is about response. It is sad, but true that supply chains have little sensory capabilities. Historically, the focus is on response; and in most organizations, it is a blind, inflexible response. While companies talk about sense and respond, the focus is on respond not on sense. In 2011, I will continue to look at the evolutions in demand sensing. I am excited by Market 6's new work, the evolution of the Terra Technology platform for demand sensing, the deepening of optimization and pattern recognition in SAS Demand-driven Forecasting and the continued evolution of pattern recognition usage in downstream data repositories like RSI, Relational Solutions, and Vision Chain."

Cecere's next trend to watch deals with rising commodity prices. She writes:

"Demand Orchestration. Buckle your belt. It is going to be a tough ride. For many companies surveyed, commodity prices are undermining their abilities to hit Wall Street. Oil will be $100 a barrel. Cotton is at a record price. Food companies are facing rising prices of food ingredients. Shortages abound in rare minerals. As leaders face this problem, demand orchestration–the mapping of sourcing and demand shaping alternatives horizontally and bi-directionally within the corporation to maximize profitability with the goal to balance customer facing-market decisions with commodity market conditions –will grow in importance. To accomplish this, the use of what if analysis and simulation of demand variability will increase as companies try to rise above inflationary pressures. Interesting technologies include Jonova, S&V Management Consultants, Signal Demand. To meet this need, companies will need to invest in manufacturing flexibility –alternate formulations/bill of materials, agile supply chains that can flex sourcing based on changes in supply, and parallel sourcing–to rise above getting caught by fluctuating commodity markets. Today, we see demand orchestration capabilities the most frequently in high tech and electronics and food manufacturing companies like Del Monte, Intel and Samsung. As the year progresses, we expect demand orchestration to grow in acceptance."

I agree with Cecere that the use of "what if" analysis is important as companies prepare themselves for the unknowns that are inevitably going to cause disruptions in the future. For more on this topic, read my posts entitled Modeling "What If" Scenarios and Examining the "What Ifs" in Life. For reasons that will become obvious, I like the next trend that Cecere will be following. She continues:

"New Forms of Supply Chain Intelligence. One of my favorite trends that I am following is the changing world of supply chain intelligence. New capabilities are evolving that can deepen our abilities to design, sense and respond value networks. Historically, supply chain intelligence has been limited to simple work rules, optimization and simulation. The use of Software as a Service (SaaS) changes the game for optimization. The use of SaaS enables parallel processing, expert tuning, data cleansing, and benchmarking opening up new horizons. I am also following the use of artificial intelligence to map “multiple ifs” to “multiple then” conditions, advanced pattern recognition to drive listening and sensing platforms and the use of optimization in combination with simulation to model the feasibility of solutions to drive the best answer. Technologies to watch include Enterra Solutions, Predictix, Revionics, SAS, Sockeye Solutions, Solvoyo, and Terra Technology. This is a great trend to watch in 2011."

Outside recognition is always nice to receive for the work you are doing. Cecere's next trend to watch contains several trends within a trend. She writes:

"Organizational Design. Twenty-five years ago, there was no supply chain organization. Today, the supply chain organization has matured, but is squarely focused on supply. Over the next ten years, supply chain organizations will bridge to end-to-end processes expanding to cover the design of buy and sell-side relationships. When it comes to organizations, one size definitely does not fit all. There are five trends that I am watching over the year:

• "Design of supply chain centers of excellence.
• "Cross-functional promotional ladders that cross IT and Line of Business.
• "Extension of supply chain thinking into relationship definition of both buy and sell-side relationships.
• "Reporting relationships and how they are changing.
• "How companies are organizing to build buy and sell-side relationships."

Cecere concludes her list with an area that is not usually described as a separate supply chain.

"Integration of the Financial Supply Chain. In the past year, I have completed two surveys to understand the advancements in the management of bifurcated trade: multi-party trade agreements for trade promotions, rebates, and new product launch. I am surprised that in both consumer products and health care that the management of these flows is in the financial organization with little influence by the supply chain. The profit leakage to streamline bifurcated trade is a large opportunity. As revenue management grows in importance in demand orchestration, it is my hope that we will start to systemically tackle this important area at the interface of finance, sales and supply chain. Interesting technologies to watch in this are include Accenture (CAS), Adesso, Demandtec, IRI, MEI, M-Factor, ModelN, Oracle, SAP and Synectics."

Shacklett and Cecere have certainly provided supply chain professionals with plenty to think about over the coming year. But if your company is considering purchasing supply chain optimization software, their views should prove valuable.

Entrepreneurship: A Calling rather than a Career

Last October I posted a blog entitled Should You Become an Entrepreneur? One of the articles cited in that post came from the Wall Street Journal and was adapted from the book The Wall Street Journal Complete Small Business Guidebook by Colleen DeBaise (Three Rivers Press, 29 December 2009). The article provided "five questions to ask before you start your own business":

1. Am I passionate about my product or service?
2. What is my tolerance for risk?
3. Am I good at making decisions?
4. Am I willing to take on numerous responsibilities?
5. Will I be able to avoid burnout?

Knowing yourself is a good first step when deciding whether you are cut out to be an entrepreneur. British entrepreneur Luke Johnson asserts, "Being an entrepreneur is not a career. It is more like a calling." ["Go forth, young business founder," Financial Times, 22 December 2010]. He explains:

"There are no predictable structures to the vocation, as there are in professions such as medicine, accountancy, law or teaching. Qualifications, job titles and one's position in the hierarchy are completely irrelevant. Anyway, some might argue that these are mostly paraphernalia designed to bestow status, rather than essential ingredients needed to do something well. By being your own boss, you make up your own journey as you travel – rather than undergoing formal training, you learn skills by practising them, from sales to accounts. The key is action: entrepreneurs are doers, not theorists."

Although I agree with Johnson that entrepreneurs are doers, I'm not in full agreement about their not being theorists as well. Most successful entrepreneurs are visionaries -- that is, they conceive an idea, consider its potential, and envision a company based on the successful implementation of the idea. That is not too far from what theorists do -- that is, they conceive an idea, consider its value, then determine methods for testing their theory. A good theorist is able to take a concept from theory to fact. There is one big difference; generally theorists only risk their reputation while entrepreneurs risk their reputation and their financial future. Johnson continues:

"Going it alone is not the easy path. There is no guarantee that you will earn even a basic wage. But financial objectives are unlikely to be your priority, for as Aristotle said: 'Youth loves honour and victory more than money.' All my observations have been that few real winners in business are exclusively motivated by wealth – they are more interested in proving a point, making their mark and creating something worthwhile. There is no security – but job security is a myth these days anyway, be it working for government or the corporate sector."

In the post mentioned above, I also cited an article by Rajiv Dingra, the young founder and CEO of WATConsult, a social media agency in India ["Are You an Early Bird Entrepreneur?" Wall Street Journal, 3 August 2010]. Dingra believes that young people possess some traits that make them good candidates to be entrepreneurs. Those traits include:

1. Age on your side.
2. Ignorance can be bliss.
3. Greatness NOT money is powerful.
4. Early to rise is early to achieve.

Johnson agrees that becoming an entrepreneur at a young age can be a good thing. He writes:

"I get the impression that twentysomethings believe in freedom and independence. Spending your time building your own company is a pretty effective way of achieving those goals. And in some respects grabbing that opportunity as young as you can is a great idea. The sooner you get used to the glories and miseries of self-employment, the better. Most important, you have so little to lose: no dependants, minimal outgoings, and all the time in the world. It is the best phase in your adult life to experiment and perhaps fail. At 21 you are young enough to try again, learn from experience and do it better next time. When you are young you have boundless energy and less inhibition about radical suggestions. The hope and ambition of someone entering the world of work at the start of their adult life should be boundless. Who else can believe in the impossible?"

He isn't trying to discourage older entrepreneurs. After all, he writes, "The older generation has wisdom." But, he continues, "It can also be cynical and too proud, too comfortable – and, perhaps, too pessimistic." As I've noted on numerous occasions, one of the universal traits found in entrepreneurs is optimism. Johnson continues:

"Someone fresh can have a different vision, an idea of a better world. There are always demands to be met and problems to solve that only entrepreneurs can satisfy. Each era brings forth transformative technologies that driven individuals commercialise and make popular. Such invention is not centrally directed, but flows from the genius of thousands of enterprising souls who do whatever is necessary to make their business succeed."

I have noted in past posts that entrepreneurs are often viewed as people obsessed. Obsession can be a good thing when it is associated with good ideas. It can be a tragic trait, however, when it is associated with a bad idea. If you have a good idea, Johnson claims now is a good time to pursue it. He claims that, "in spite of the financial crisis and the weak economy, this is a great time to try new projects." He explains why:

"The internet makes innovation cheaper than ever. You can buy and market to the world from your laptop. There is also more support in various forms than in the past for young entrepreneurs – whether formal guidance or mentors of one sort or another. There are numerous websites, clubs, books and other ways that entrepreneurs can keep informed and network."

Johnson concludes: "For idealists who really want to change the world, becoming an entrepreneur is a more effective move than most." I'm not so sure that idealism is as important as realism when it comes to being an entrepreneur. I would have been happier had Johnson used the term visionary rather than idealist. Even though entrepreneurs are doers, Jonathan Moules claims, "Failing to act is a significant problem for many entrepreneurs too." ["Key to success is acting on resolutions," Financial Times, 20 December 2010] He continues:

"One entrepreneur with a reputation for action is Michael Acton Smith, co-founder of online gadget shop Firebox.com and creator of Moshi Monsters, a virtual world designed specifically to be safe for young children to use, developed by his London-based digital entertainment business Mind Candy. ... However, Acton Smith admits that even he has fallen victim to prevarication in the past. ... Trying to do things on your own can often lead to inaction."

In Acton Smith's case, he delayed killing a project that proved to be a commercial failure. The delay ended up costing investors millions of dollars. Looking forward, however, Acton Smith now works with a team and he "claims that one of the reasons things get done at Mind Candy is that 'being entrepreneurial' is a part of the culture among all staff." For him, "being entrepreneurial" and "being a doer" are one in the same thing. Moules continues:

"One way of encouraging [being entrepreneurial] has been to run 'hack weeks', where all Mind Candy's staff are given seven days off from whatever they are paid to do normally to try out new ideas for the business. One innovation from last year's hack week – adding extra monsters that users can connect with while they walk round the Moshi Monsters virtual world – sparked a sharp increase activity on the website."

Simply telling people to go out and be creative doesn't always work and some analysts believe that permitting employees to go off on their own wastes both time and resources. Moules continues:

"JC Duarte, who advises fast growing companies from Sydney to San Francisco about improving their decision-making, says that the key to getting whole businesses to become doers is to break big goals into small achievable actions and to get small teams putting these into place. Decision-making often grinds to a halt when companies pass the 150 employee mark, Duarte says. 'A really good business plan will go down the proverbial toilet because the owners will not have the time or money to act on all the ideas they are having.' The process of taking action as a business is not much different to sticking to a New Year’s resolution, Duarte tells clients. 'One of the keys to success is to make it personal,' he says. Just as it is more difficult to stop smoking or lose weight by making a dramatic change in lifestyle, so it is with business strategies. Duarte cites an example of an online retailer in southern Europe, which grew from 250 people to 600 and beat its own aggressive sales target by 160 per cent, simply by picking five micro-strategies each quarter that small teams of staff felt they could achieve. 'Acting on a decision is only effective when the outcome can be visualised and is quantifiable,' he says."

Duarte's advice sounds a lot like the advice given to someone tasked with eating an elephant. "How do you do it?" the person asked. The answer, of course: "One bite at a time." Moules notes that not all actions deal with strategic choices (i.e., choices that help a company reach a desired end state). He explains:

"Often the most difficult actions that entrepreneurs need to make are not strategic, but relate to people. Jennifer Janson, managing director of PR agency Six Degrees, admits that one of her biggest regrets was spending the best part of three months prevaricating over the firing of a senior executive. 'Not acting meant that I was not able to dedicate time to my business. It also had a personal impact because of the worry and sleepless nights,' she says. Of course, once she acted, Janson’s greatest fears – about damage to morale and industrial tribunals – proved unfounded. 'Once we had the conversation, he said that in fact it was not working for him either,' she recalls. The two parted amicably."

Of course, not all partings are amicable. As a President and CEO of a company, I know how gut-wrenching the decision can be to let someone go. Even though the decision is based on sound business logic, I know that the decision can have significant personal consequences. Such decisions are necessary, but never easy. Moules concludes:

"Sometimes, however, it is as important not to act. Errol Damelin, founder and chief executive of online lender Wonga.com, is another entrepreneur with a reputation for never shying away from change. Since Wonga started trading in 2007, it has doubled its size every four to five months and Damelin attributes a lot of this to constant changes, whether it is refining the software behind the service every fortnight or making sure that every meeting held in the company's west London headquarters results in an action. Such fast movement is a competitive advantage in the banking industry, where the incumbent players are generally more cautious about change. 'We compare ourselves to Google and Apple,' Damelin says, adding that mistakes are tolerated so long as people have prepared a 'reverse gear' to resolve a problem if things do go wrong. However, Damelin also spent a year doing nothing but analysing the concept behind Wonga before going to market. 'There needs to be a time and a place where you are reflective,' he says."

Being reflective and doing nothing are not exactly the same things. Being cautious and being a perfectionist are not exactly the same things either. There is saying that goes: "Better is the enemy of good enough." Many a procrastinator has waited to go to market because he or she has wanted to make their good enough product better only to see someone act ahead of them and capture the market. Since this the beginning of a New Year, it might be a good idea to make a resolution to act more quickly when a decision needs to be made. If you have prevaricated, don't fret too much. In a future post, I will discuss the benefits of coming late to the game.

Being Good versus Feeling Good: The Case for Working Hard

The actor Fernando Lamas was a strikingly handsome and admittedly vain man. He died at the young age of 67. Not too long before his death, he made an appearance on The Tonight Show starring Johnny Carson. As he entered the stage, Lamas said, "You look marvelous, John." In reply, Carson quipped, "Well you look great, too." Lamas then uttered one of his more famous lines. He said, "I'd rather look good than feel good." At the time Lamas was probably already suffering from pancreatic cancer. The comedian Billy Crystal was watching that night and found that short exchange so amusing that he based his famous character "Fernando" and Fernando's catch-phrase ("You look mahvelous") on that segment. Before you start thinking that this post is about comedy, I'll tell you that it's about education and raising children. However, I just can't hear the words "feeling good" without thinking about Fernando Lamas' famous quip. I was reminded of The Tonight Show exchange while listening to a segment of National Public Radio's Marketplace dealing with education reform. During that segment, commentator and educator Michelle Rhee stated, "We've become so obsessed with making kids feel good about themselves that we've lost sight of building the skills they need to actually be good at things." ["Education reform needs a new starting point," 18 January 2011]. Thanks to Fernando Lamas' famous line, I immediately translated that comment into: "I'd rather feel good than be good."

Ms. Rhee used her own daughters as examples. She reported that they play soccer -- with a certain lack of skill. Yet their rooms are "adorned with ribbons, medals and trophies." Rhee stated, "You'd think I was raising the next Mia Hamm." She continued:

"I routinely try to tell my kids that their soccer skills are lacking and that if they want to be better, they have to practice hard. I also communicate to them that all the practice in the world won't guarantee that they'll ever be great at soccer. It's tough to square this though, with the trophies. And that's part of the issue. We've managed to build a sense of complacency with our children. Take as a counterpoint South Korea, where my family is originally from. In Korea, they have this culture that focuses on always becoming better. Students are ranked one through 40 in their class and everyone knows where they stand. The adults are honest with kids about what they're not good at and how far they have to go until they are number one. Can you imagine if we suggested anything close to that here? There would be anarchy."

In a number of past posts about education, I have pointed out that politicians and business people are concerned about the state of American education [see, for example, my post entitled Update on Education in America]. In that post, I noted that many countries are moving to educational systems that stress problem solving (a system started in the U.S), while the U.S. seems to be headed to towards a system based on rote memory and standardized tests -- the very system being abandoned by countries that are changing. Rhee continued:

"There are many nations who have figured out what works in education. Look at Singapore. Last summer, I heard the prime minister gave a speech in which he outlined the plan for making Singapore number one in the world, financially. His economic plan was rooted in education. He knows that if the country can make its education system the best in the world, economic success will follow. That's the opposite of what we do here in America. We see education as a social issue, not an economic one. And what happens to social issues in times of economic hardship? They get swept under the rug. We need to change our national conversation on education and our national culture on how we encourage kids. I think what's becoming clear with all of this, is that if we don't start to shift our perspective, we'll never regain our position in the global marketplace."

In other words, we need to start impressing our children with the importance of being good rather than feeling good. The latter follows the former. If you do good, you will feel good. Washington Post columnist Robert J. Samuelson writes, "Almost everyone who worries about America's 'competitiveness' in the world bemoans the sorry state of U.S. K-12 education." ["To foster high-achievers, think beyond the classroom," 10 January 2011]. Samuelson goes on to report that critics claim, "The Chinese and others do better. We need to catch up." Samuelson, however, is not so sure. He explains:

"From President Obama to CEOs, the refrain is to 'fix the schools,' almost as if it were an engineering problem. 'The urgency for reform has never been greater,' Education Secretary Arne Duncan recently wrote in The Post. The diagnosis spans the political spectrum. But what if it's not true? There are grounds for doubt. For starters, economic competitiveness depends on more than good schools, which are important but not decisive. To take an obvious example: The Japanese have high test scores, but Japan's economy languishes. Its export-led growth has foundered. Next - and as important - American schools are better than they're commonly portrayed. We now have a massive study of the reading abilities of 15-year-olds (roughly 10th-graders) in 65 systems worldwide showing that U.S. schools compare favorably with their foreign counterparts. The most pessimistic view of the study is that, on average, American schools do as good a job as schools in other wealthy nations. We're worse than some and better than others. The overall loss of economic competitiveness is likely modest and would be swamped by other factors (government policies, business management, exchange rates, the willingness to take risks). But a more detailed evaluation of the study - comparing similar students in different countries - suggests that U.S. schools still rank high in the world."

Samuelson further makes his point by detailing some of the results of the study, called the Program for International Student Assessment (PISA), which was conducted by the Organization for Economic Cooperation and Development. His conclusion about the U.S. education system, "Good, perhaps. But not great." Samuelson is more concerned about how America educates black and Hispanic children than he is about the overall state of education in the U.S. He explains:

"The overall scores don't tell the full story. The U.S. Education Department examined the American scores by race and ethnicity. This report ("Highlights from PISA 2009") allows comparison with countries whose ethnic and racial compositions are more homogeneous than ours. For example, you can compare the scores of white non-Hispanic Americans with the scores from Canada, a country that is almost 85 percent white. This is an admittedly crude approach, but it suggests that U.S. schools do about as well as the best systems elsewhere in educating similar students. Among non-Hispanic white Americans, the average score was 525 - not very different from Canada's 524, New Zealand's 521 or Australia's 515. All these countries are heavily white, and all ranked in the top 10 of the 65 participating school systems. The story is the same for Asian Americans. Their average score was 541 - somewhat below Shanghai, about even with South Korea and ahead of Hong Kong (533) and Japan. Again, all these other systems were in the top 10. American schools are hardly perfect. Math scores, though showing the same pattern, are lower than reading scores. We can learn from other countries better ways to teach math. But the most glaring gap is well-known: the stubbornly low test scores of blacks and Hispanics. In the PISA study, their reading scores were 441 (blacks) and 466 (Hispanics). Changing this is the great challenge for schools, because the share of black and Hispanic students is growing. It was 23 percent in 1980, 35 percent in 2009."

On one point, Rhee and Samuelson appear to be in complete agreement, "Americans have an extravagant faith in the ability of education to solve all manner of social problems." I suspect that Samuelson, like Rhee, doesn't view the state of the U.S. educational system as a social issue. Like Rhee, he lays the blame on parents and others who refuse to hold students to higher standards and who fail to teach them about personal responsibility. He concludes:

"In our mind's eye, schools are engines of progress that create opportunity and foster upward mobility. To the contrary, these persistent achievement gaps demonstrate the limits of schools to compensate for problems outside the classroom - broken homes, street violence, indifference to education - that discourage learning and inhibit teaching. As child-psychologist Jerome Kagan points out, a strong predictor of children's school success is the educational attainment of their parents. The higher it is, the more parents read to them, inform and encourage them. For half a century, successive waves of 'school reform' have made only modest headway against these obstacles. It's an open question whether the present 'reform' agenda, with its emphasis on teacher accountability, will do better. What we face is not an engineering problem; it's overcoming the legacy of history and culture. The outcome may affect our economic competitiveness less than our success at creating a just society."

To demonstrate how difficult it may be to overcome cultural traditions, I only have to point out the numerous articles dealing with Amy Chua's controversial new book Battle Hymn of the Tiger Mother. In a Wall Street Journal article ["Why Chinese Mothers Are Superior," 8 January 2011], Chua writes:

"A lot of people wonder how Chinese parents raise such stereotypically successful kids. They wonder what these parents do to produce so many math whizzes and music prodigies, what it's like inside the family, and whether they could do it too. Well, I can tell them, because I've done it. Here are some things my daughters, Sophia and Louisa, were never allowed to do:

"• attend a sleepover
"• have a playdate
"• be in a school play
"• complain about not being in a school play
"• watch TV or play computer games
"• choose their own extracurricular activities
"• get any grade less than an A
"• not be the No. 1 student in every subject except gym and drama
"• play any instrument other than the piano or violin
"• not play the piano or violin.

"I'm using the term 'Chinese mother' loosely. I know some Korean, Indian, Jamaican, Irish and Ghanaian parents who qualify too. Conversely, I know some mothers of Chinese heritage, almost always born in the West, who are not Chinese mothers, by choice or otherwise. I'm also using the term 'Western parents' loosely. Western parents come in all varieties. All the same, even when Western parents think they're being strict, they usually don't come close to being Chinese mothers."

Whether you believe that Chua and other "strict immigrant parents" go too far or not, one point is incontrovertible -- to be good at something takes hard work. If you want successful children, you need to teach them how to be successful by teaching them how to work hard. I agree with Samuelson that if parents took more interest in their children's education and held them to higher standards, we wouldn't be lamenting the sad state of education in America. We've carried the notion that it is more important for children to feel good than be good to the extreme. I've even read of cases where mothers have called their grown children's bosses to criticize them for making their children feel bad by giving them a less than stellar performance review. As I noted above, if we can get our children to do good (i.e., perform at much higher levels) they will inevitably feel better about themselves -- and they would have earned that feel good moment.

Defining the Supply Chain

A senior IBM consultant who anonymously writes the blog @ Supply Chain Management, recently wrote a post that asks: What is the Supply Chain? [10 January 2011] The author decided that this is an intriguing question because it is so difficult to answer. The IBMer writes:

"Do you know that this is the most frequently searched Google phrase that drives people to my site (and I'm sure very many other sites in this space as well)? Ah, this is easy enough to answer and so I posed the question to myself: What exactly is the Supply Chain? I must confess that I really couldn't come up with an answer that didn't suffer from some rebuttal or the other. So I pose it to you as well – What is the Supply Chain?"

David Blanchard, in his book entitled Supply Chain Management: Best Practices, asks the same question. He writes:

"What exactly is a supply chain? There are plenty of definitions for the term, and we'll look at a couple of them, but this question gets asked so often because the answer tends to change depending on who's doing the telling. It's like the old fable about the blind men who stumble on an elephant and try to tell each other what the elephant is like: The man holding the leg thinks the animal looks like a tree; the man holding the tail thinks an elephant resembles a rope; a third man who grabbed a tusk thinks the whole animal must be like a spear. Each of their answers is partly right, but anybody who has actually seen an elephant smiles at the story because they know these blind men are missing the big picture."

Cute story, you say, but it gets us no closer to answering the question at hand; but, in a way its does. A manufacturer like Dell, that eschews traditional brick-and-mortar retail stores, has a very different supply chain model than a more traditional retailer like Walmart. Nevertheless, Blanchard believes there are enough common elements in those supply chains that he defines a basic supply chain this way:

"A supply chain, boiled down to its basic elements, is the sequence of events and processes that take a product from dirt to dirt. ... A supply chain, in other words, extends from the ultimate supplier or source ... to the ultimate customer. ... So whether you're talking about an Intel semiconductor that begins its life as a grain of sand or a Ford Explorer that ends its life in a junkyard where its remaining usable components (tires, seat belts, bumpers) are sold as parts, everything that happens in between those 'dirt to dirt' milestones encompasses some aspect of the supply chain."

That's a pretty good description. Blanchard goes on to note that "the concept of supply chain management" can be summarized "in just five words: plan, source, make, deliver, and return." Michael Hugos notes that the term "supply chain management" arose in the late 1980s. Hugos also realizes that there is no single accepted definition of a supply chain. In his book Essentials of Supply Chain Management, he provides three:

• "'A supply chain is the alignment of firms that brings products or services to market.' (Douglas M. Lambert, James R. Stock, and LIsa M. Ellram, Fundamentals of Logistics Management)
• "'A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves...' (Sunil Chopra and Peter Meindl, Supply Chain, Second Edition)
• "'A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.' (Ram Ganeshan and Terry P. Harrison, 'An Introduction to Supply Chain Management')"

The supply chain is not linear -- in either time or direction -- as shown by the simplified graphic below. The very complex nature of the supply chain is what makes it so difficult to define.

This brings us back to the post by our senior IBM Consultant. He continues:

"Now some may hearken to the introduction that most have of the supply chain that usually have the neat diagrams that connect material flow from neat boxes of producers, intermediaries etc and information flow in the reverse direction. But is that what it is? In the sense, does the activity of material and information flow define Supply Chain Management? In other words, is Supply Chain Management just an activity descriptor? Well, if it is not just an activity descriptor –- then you can safely put away transportation, warehouse and all sorts of other management. Inventory Management? So let's move up that chain to see whether it is about the customer? Forecasting? S&OP? In other words, is it about getting an analytical feel for the way demand is going to be or a structured process about marshalling a firm's resources and fulfilling that demand whatever that might be? Again, how is this different from some definite activity? Alright, maybe it is not one activity but a rhythm of many activities that must be more or less in harmony. So how is that different from just Operations Management with a new focus on getting all the links functioning together? You see where I'm going ... Perhaps we take the easy route and point to an activity (or activities) or point to a piece of software (ERP, MRP, SCM, TMS, WMS etc)? If someone came to you and asked you – 'What is Supply Chain Management?', what would you say?"

You might have noticed that the consultant went from asking "What is the supply chain?" to asking "What is Supply Chain Management?" They are different questions even though they relate to the same topic. Hugos provides us with two definitions of supply chain management. He writes:

• "'[Supply chain management is] the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-range performance of the individual companies and the supply chain as a whole.' (John T. Mentzer, William DeWitt, James S. Keebler, Soonhong Min, Nancy W. Nix, Carlo D. Smith, and Zach G. Zacharia, 'Defining Supply Chain Management,' Journal of Business Logistics)
• "'Supply chain management is the coordination of production, inventory, location, and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served.' (Michael Hugos)"

In the end, Blanchard probably had it right when he implies that where you sit determines what you see. If dealing with the complexities of the supply chain were easy, there wouldn't be so many books, magazines, blogs, and college courses dedicated to the subject. The lines between business sectors and business operations are not as distinct and defined as a tidy mind might like. That is why "management" is a key term in supply chain management. SCM is not a science but an art. A good SCM professional must be a manager, a negotiator, a visionary, a philosopher, and, occasionally, a saint (because he has to deal with all of devils in the detail).

Disaster Relief, Development, and Supply Chains: The "Last Mile" Challenge

Yesterday's earthquake in Pakistan along with recent flooding in Brazil, Sri Lanka and Australia remind us that disasters come as regularly as trains in Switzerland. The floods in Australia had the government scrambling to provide emergency supplies to residents in Queensland. Every disaster brings with it supply chain challenges that would give any supply chain manager nightmares. Most of these challenges are "last mile" challenges -- how do you get what's needed to the people in most desperate need of the help. As innovators think up solutions that deal with those "last mile" challenges, those solutions are likely to find their way into mainstream supply chains as well. This will be especially true as companies penetrate the "bottom billion" market where normal distribution channels don't work well. What started me thinking about this topic was an article about a "multi-purpose vehicle capable of delivering emergency housing and supplies to disaster areas then rapidly returning to base ready for another mission" ["A.N.T. Aid Necessities Transporter concept vehicle," by Grant Banks, Gizmag, 4 January 2011]. Banks continues:

"The idea takes inspiration from it's namesake in the insect world – creating more than just a unique concept vehicle but an entirely new aid distribution system. The A.N.T has been designed to traverse rough terrain that would be impossible for conventional trucks to navigate, delivering supply pods and temporary shelter to disaster stricken communities. The vehicle then transforms itself into a low-profile form for a swift return to headquarters."

The following video makes the ANT concept a lot clearer.

The ANT can transport a number of different types of containers from housing units to basic supplies. In disaster relief situations, I can envision it transporting a temporary store to a remote area along with the goods to stock it. Such a store could service the needs of remote villages in developing countries. Banks continues:

"The concept was developed by Melbourne (Australia) designer Bryan Lee for his graduate design project while studying Industrial Design at Monash University in 2009. Lee told Gizmag his initial inspiration came from wanting to design a better vehicle for disaster relief. ... While researching for his project the student designer came across a documentary that changed the direction of the concept. 'It was about ants and their colony,' Lee told Gizmag. 'I was fascinated with their aesthetics, ability and system they run on which led me to believe that they are truly natures transporters. One of the biggest inspirations I took from ants were how they transported their food back to their nest. In groups. From this, instead of using the conventional way organizations deliver supplies all at once by land, I decided to create a new system where although it carries slightly less, the A.N.T's will travel back and forth from HQ's to the disaster zone delivering supplies faster and earlier.' Just like their insect namesakes, the A.N.T in Transport mode would head towards the disaster stricken area traveling in groups. On arrival the vehicle would quickly deploy the supply unit, which doubles as a temporary housing module. The A.N.T would then rotate its cockpit section 90 degrees downwards transforming to Rapid mode allowing the swarm of A.N.T.s to quickly travel back to headquarters ready to load up another supply unit."

Some distribution companies are already using some interesting and unconventional delivery vehichles to meet the needs of customers in crowded or remote locations. I suspect that the ANT could become another tool in their kit. Banks concludes:

"The A.N.T employs a number of intelligent design features that allow for swift aid distribution. These include six independent electric in-wheel motors, a large unique all-terrain suspension system that also allows for rapid loading and deployment of supply units, rotational hydraulics for transformation from Transport to Rapid modes, and a well thought out supply unit design that doubles as temporary housing."

An organization called VillageReach, is focused on helping find "last mile" solutions in developing countries. On its website, the organization points out that millions of dollars of research and development aimed at helping the world's poor becomes meaningless if the results of that R&D can't reach the people it is intended to help. Concerning the area of healthcare (which faces challenges involving transportation and cold chain costs), the site states:

"Without addressing the distribution capabilities for health systems, the world risks an innovation pile-up, where the intended value of the billions being spent on research and development may not be realized."

This notion is nothing new for supply chain professionals. They have a great appreciation for "last mile" challenges. You don't have to head to the developing world to encounter them. Kenneth K. Boyer, Andrea M. Prud'homme, and Wenming Chung note, "The operational challenges underlying consumer direct delivery are daunting. Numerous companies have failed due to operational and logistical problems encountered with delivering orders directly to customers." ["The Last Mile Challenge: Evaluating the Effects of Customer Density and Delivery Window Patterns," Journal of Business Logistics, 1 January 2009]. They continue:

"As an illustration of the benefits and challenges of increasing customer density, consider three groups of customer delivery types. Of the 115.9 million residences in the United States, 30% are in central cities, 46% are in suburban areas, and 34% are outside of metropolitan areas (U.S. Government 2001). Approximately 30% of U.S. households have a non-working or 'at-home' adult that may be available to accept a package in person (Laseter, Torres, and Chung 2001), although that person would not necessarily be available all day, every day. Logistics providers face different challenges within each demographic category:

"* 30% of households are in high density central city areas which provide the highest level of efficiency in terms of deliveries per mile and delivery route efficiency, but may result in a less safe environment for packages left unattended when a recipient is unable to accept a package in person, or in some other secured manner.

"* 46% of households are located in suburban areas that may be more secure for unattended packages, but the increased unpredictability of route and delivery stops on a daily basis provide much less opportunity for logistics providers to successfully optimize routes or the travel distance per package, resulting in greater route inefficiencies.

"* 34% of households are in rural settings, which may be the most secure for unattended packages but require the greatest travel distances between deliveries, have very inefficient routes, and are difficult to economically justify. ...

"The routing of vehicles for effective service delivery is an area of critical importance to logistics organizations and researchers. Hundreds of papers have been written on various aspects of routing."

It doesn't take much imagination to understand how routing challenges are exacerbated during disasters where streets are under water and bridges have collapsed. Even the ANT can't overcome all of the "last mile" challenges that may be encountered. "Last mile" challenges are found in a number of sectors and not all of those challenges involve the physical movement or placement of things.

In the video found below, MacArthur "genius award" winner Sendhil Mullainathan provides a good overview of the "last mile" challenge and discusses how it affects development. He sees the same "innovation pileup" discussed by VillageReach. He goes on to describe how marketing and behavioral science can be used to help solve some of the challenges. The video takes about 18 minutes to watch, but it is very interesting.

The "last mile" challenge is an interesting topic because it has such significant impact in a wide variety of human activities. No sector, however, is more aware of the challenges associated with the last mile than the supply chain sector. I suspect that ideas will flow both ways between the commercial and humanitarian sectors as individuals and organizations try to solve these "last mile" challenges.

As a closing note, I'd like to return to the ongoing disasters around the world. Humanitarian aid is going to be needed to help people recover. One year on from the earthquake disaster in Haiti, we're reminded that the next disaster always draws funds away from the last one. That means that every donated dollar is precious. If you are thinking about giving to charity, give wisely. After every disaster fake charities pop up to steal money from well-intentioned people. Blog reader Joseph Morris linked me to a site his organization just posted that can help you give wisely ["Give Smart: 25 Websites to Learn a Charity’s Effectiveness & Efficiency," Masters In Public Administration]. The site is worth checking out before you decide which organizations should receive your donations.

Outsourcing Institutional Innovation

In a previous post about innovation, I discussed a number of innovation myths identified by Scott Berkun and presented in a slideshow entitled "Un-Managing" that was prepared by Tara Hunt. The fifth myth identified by Berkun was the belief that most people can't be creative. Many creativity gurus believe that creativity is a matter of technique. Once people are taught techniques that permit them to view challenges from different perspectives, they are surprised how creative they can be. There are a number of "idea factories" and creativity freelancers who make a lot of money convincing companies that using the right techniques can generate a lot of good ideas ["In Pursuit of the Perfect Brainstorm," by David Segal, New York Times, 16 December 2010]. One of those companies is called Jump Associates and it is the focus of Segal's article. He writes:

"[In November 2010], in a small room on the fifth floor of a high-rise building in San Mateo, Calif., three men sat around a table, thinking. The place was wallpapered with Post-it notes, in a riot of colors, plus column after column of index cards pinned to foam boards. Some of the cards had phrases like 'space maximizers' or 'stuff trackers' written on them. Many had little three-dimensional ink drawings and titles, like 'color-coded Tupperware horizontal stacker.' It looked as if these guys had been locked in and told they couldn't leave until they dreamed up 1,000 of the wackiest home-storage items they could imagine. Which was pretty much what happened. 'We're in our third month,' said one of the men, Clynton Taylor, 'so we're at about the halfway point.' This was a project room at Jump Associates, a company with 50 employees that comes up with ideas to solve what it calls 'highly ambiguous problems.'"

Segal reports that all that thinking doesn't come cheap. "You can hire Jump to think on your behalf, for somewhere between $200,000 to $500,000 a month, depending on the complexity and ambiguity of the question you need answered." Based on an average cost of around $350,000/month, ideas Jumpsters are working on better be worth the over the $2 million the client is paying to get them. "Exactly what problem was being solved in the room, and which client asked Jump to solve it, the company wouldn’t say." Segal reports that Jumpsters, as employees are called, are not quite so tight-lipped about past projects. He writes:

"Procter & Gamble asked Jump to study the future of water and what it portends for a company that makes water-dependent products like soap and laundry detergent. Mars, the candy maker, asked Jump to define the current meaning of 'indulgence,' on the theory that it now conjures pampering rather than stuffing your face. General Electric has retained Jump for at least 10 different projects. Jump's work has elements of management consulting and a bit of design-firm draftsmanship, but its specialty is conceiving new businesses, and what it sells is really the art of innovation."

Segal writes that Jump "is built on the premise that creative thinking is a kind of expertise." You can either hire its in-house expertise to tackle problems or you can hire the company to teach your personnel to become experts (that costs bit a money as well -- "$200,000 for a one-day session for 25 employees"). Segal claims that Jump's business model was "pretty exotic" back in 1998, the year the company was founded, "but it isn't today." He explains:

"In the last decade, a quirky legion of idea peddlers has quietly invented what might be a new discipline and is certainly an expanding niche. How and why this happened is, naturally, a subject that everyone in the field theorizes about. What's clear is that in recent years, much of corporate America has gone meta — it has started thinking about thinking. And all that thinking has led many executives to the same conclusion: We need help thinking. A few idea entrepreneurs, like Jump, Ideo and Kotter International, are companies with offices and payrolls. But many are solo practitioners, brains for hire who lecture at corporations or consult with them regularly. Each has a catechism and a theory about why good ideas can be so hard to come by and what can be done to remedy the situation."

In a post entitled Better Hospital Management -- Better Health Care, I noted that Kaiser Permanente had hired IDEO to help it think about how it could improve health care. In that post, I included a video clip (repeated below) of an ABC Nightline episode showing IDEO's "deep dive" technique for thinking through a problem.

The big question raised by Segal's article is: Why do companies filled with smart and talented employees need help thinking? He tries to explain:

"Eric Haseltine, who has worked for both Disney and the National Security Agency, draws on the findings of evolutionary psychologists to explain to corporations why they are often unable to see opportunities that are right in front of them. 'Although we like to believe we know what is going on in our brains, we know almost nothing about what is going on inside them,' he says. 'We're not only blind to certain things, but we're blind to the fact that we're blind to them.'"

That sounds remarkably similar to Donald Rumsfeld's now famous remark, "There are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns -- the ones we don't know we don't know." My take on why companies can use help from outsiders is because outsiders bring with them new perspectives and new knowledge. The more varied the backgrounds of those brought in the better because it increases multi-discipline collaboration. Frans Johansson pointed out a number of years ago that Italy's famous Medici family sparked the renaissance by gathering Europe's greatest thinkers and artists together to exchange ideas. He called the result "The Medici Effect." The Medici Effect is the ultimate payoff of interdisciplinary collaboration. Apparently Jump Associates believes in interdisciplinary collaboration as well. Segal explains:

"When I visited Jump Associates in San Mateo in early November, it was conducting a one-day boot camp, attended by a couple of dozen executives from the region. The morning session ... was led by a handful of Jumpsters, most of whom were in their 30s. ... Some of them were M.B.A.'s and former management consultants, but nearly everyone's résumé had a polymathic twist. One Jumpster was a former U.S. forest ranger and Korean foreign-ministry staff member. Another had an undergraduate degree in civil engineering and a master's in visual criticism."

According to Segal, Jump Associates provides its workshop participants with a good background "about how ideas are born and nurtured, and why some great ideas die after just a few gulps of oxygen." He continues:

"Like many of its competitors', Jump's core offering is an assortment of refinements to old-fashioned brainstorming. The analogy to weather built into that term is apt, it turns out, because Jump and others contend that without the right atmospheric mix, no brainstorming session will produce the cognitive version of lightning. Dev Patnaik, a sunny, kinetic co-founder and the chief executive of Jump, notes that even under ideal circumstances, traditional brainstorming can devolve into a kind of competitive idea tennis. You think of a new use for pencil. Then me. Then you. Then me. Somehow, the unstated goal is winning, however ill defined victory might seem, instead of ginning up virtuoso concepts. At Jump, they prefer to brainstorm with a variation of a technique pioneered in improv theater. A comic offers the first sentence of a story, which lurches into a (hopefully funny) tale, when someone else says, 'Yes, and?' then adds another sentence, which leads to another 'Yes, and?'— and back and forth it goes. In the context of brainstorming, what was once a contest is transformed into a group exercise in storytelling. It has turned into a collaboration."

That technique is fine if you want to expand on and refine views concerning a single concept or idea, but if you want to generate a large variety of ideas, other refined brainstorming techniques probably work better. I say "refined" brainstorming techniques because studies have shown that people brainstorming in isolation then coming together to discuss those ideas produce more and better ideas than teams trying to brainstorm together from the start. There are several reasons for this. First, of course, is fear. People fear that others will think their ideas are stupid so they don't bring them up. A second impediment to brainstorming, however, is even more significant. People have difficulty holding on to more than one thought (which, in traditional brainstorming settings, they must wait to bring up when others are talking). This retards their ability to move on to other ideas. Individual brainstorming doesn't suffer from this problem. People are simply able to move from idea to idea without having to wait. To learn more about brainstorming and techniques that can be used to overcome its shortcomings, read my post entitled Is America Undergoing a Creativity Crisis? Part 2.

As I have written before, another good way to generate good answers is to ask good questions. Segal agrees. He writes: "You often hear this from idea entrepreneurs: Don't ask us for the answers. Let us help you frame the questions, so you can answer them yourself." Segal goes on to explore the questions -- "Why now? Why did innovation-mania take hold in the last decade or so?" He writes:

"One school of thought holds that corporations both rise and die faster than ever today, placing a premium on the speedy generation of ideas. The dot-com boom accelerated the process, [Vijay Govindarajan, a professor at Dartmouth’s Tuck School of Business], says. 'In the late '90s, people started to say strategy isn't about stability, it's about change,' he says. Other ideas entrepreneurs offer a 'great man' theory, pointing to the enormous influence of Clayton M. Christensen, a Harvard Business School professor and an author of books including 'The Innovator's Dilemma' and 'Innovation and the General Manager.' Christensen coined the term 'disruptive innovation' in 1992 to describe the kind of technological and marketing ideas that blindside established and seemingly well managed businesses. Think of Netflix, which reinvented the way videos are rented and crushed Blockbuster. Or Sears, a titan of retail for decades, which was poleaxed by discounters like Wal-Mart. Christensen has plenty of suggestions for avoiding the fate of the disruptees; for instance, he urges corporations to wall off a division that is built to think creatively and is small enough to be excited by small profits. But all of his prescriptions can be boiled down to three words: Innovate or die."

The most interesting answer provided for the question -- Why did innovation-mania take hold in the last decade or so? -- was provided to Segal by Dev Patnaik, the co-founder and the chief executive of Jump. He claims it has to do with the changing role of management. Good managers used to be executives with access to data and a penchant for presenting it in a meaningful way. He now claims that software provides that function. Segal continues:

"The days when a manager at, say, the Gap could earn a bow just for knowing how many sweaters to ship to Seattle [are] over. 'When that happens, what is the role of the manager?' Patnaik asks. 'Suddenly it's about something else. Suddenly it's about leadership, creativity, vision. Those are the differentiating things, right?' Patnaik draws an analogy to painting, which for centuries was all about rendering reality as accurately as possible, until a new technology — photography — showed up, throwing all those brush-wielding artists into crisis. 'Then painters said: "Well, wait, you can tell what is but you can't tell me my impression of what is. Here's how it looks to me." ... Or the Cubists who said, "You can't capture what is going on from multiple angles."' Technology forced painters to re-evaluate, which transformed their work. Something similar has happened in corporate America. As Patnaik puts it, 'We’re in the abstract-expressionist era of management.'"

Segal notes that the best innovation factories are relatively small firms. Their success, however, has a number of larger consultancy firms eyeing them for acquisition. Segal writes, "Precisely how Jump's business model could work in a management firm with a vastly larger payroll is unclear." He goes on to describe a workshop he sat in on at Jump Associates concluded that it involved an "animated" and "slightly chaotic" form of brainstorming. He continues:

"The term ["brainstorming" was] popularized by Alex F. Osborn. In 1948, Osborn, the man who put the O in BBDO, the legendary advertising firm, wrote 'Your Creative Power,' a jaunty, history-filled book that argued that creativity was essentially a muscle that, with enough exercise, anyone could develop. Especially if that exercise happened in groups, like the ones he started organizing at BBDO in 1939. The key to these sessions, he stated, was creating an atmosphere in which judgment about the quality of any idea is suspended. If participants worry about criticism, they edit themselves, which undermines the process. 'The crazier the idea, the better; it's easier to tone down than to think up.'"

Segal claims that most "idea entrepreneurs" offer one form or another of "Osborn deluxe." He explains:

"Govindarajan, the Dartmouth professor, presents companies with what he calls the three-box framework. In Box 1, he puts everything a company now does to manage and improve performance. Box 2 is labeled 'selectively forgetting the past,' his way of urging clients to avoid fighting competitors and following trends that are no longer relevant. Box 3 is strategic thinking about the future. 'Companies spend all of their time in Box 1, and think they are doing strategy,' he says. 'But strategy is really about Box 2 and 3 — the challenge to create the future that will exist in 2020.' He recommends to clients what he calls the 30-30 rule: 30 percent of the people who make strategic decisions should be 30 years old or younger. 'The executives who've been there a long time, they grew up in Box 1,' he says. 'You need voices in the room that aren't vested in the past.'"

Of course you can obtain "voices in the room that aren't vested in past" by bringing in outsiders as well as by having younger people involved in the conversation. Part of the attraction of bringing in outsiders is entertainment. Although they might not see themselves as entertainers, creativity gurus wouldn't stay in business if they were boring. Segal continues:

"Eric Haseltine, the entrepreneur who has married management consulting and evolutionary psychology, says he walks his clients through a series of exercises intended to demonstrate how little they know about their brains. One of his favorites is the 'cocktail-party phenomenon,' in which he asks participants to eavesdrop on a single conversation in a crowded room. It's possible only if you manage to ignore every other sound. 'Tuning in requires tuning out,' he says, 'but few people realize how much they are tuning out at any given moment so they can focus on whatever they are focusing on.' Tuning out is adaptive, he says — it helped our hunter ancestors to focus on their prey and avoid starvation. But his job is to point out to clients how that adaptation can also limit their perspectives without them realizing it, and to offer them practical strategies to deal with these unconscious limitations."

What Haseltine sees as an obstacle to innovation (i.e., tuning in and tuning out), Po Bronson and Ashley Merryman view as a vital trait. One of the things that characterizes truly creative people, they claim, is their ability to concentrate. Tests have shown that creative musicians have a way of turning off part of the brain that "reads incoming stimuli, sorting the stream for relevance." Turning that portion of the brain off permits musicians to block out all distraction." According to Bronson and Merryman, "They hit an extra gear of concentration, allowing them to work with the notes and create music spontaneously." This ability to concentrate and formulate creative activity appears also to be true for dancers and athletes as well as musicians. ["The Creativity Crisis," by Po Bronson and Ashley Merryman, Newsweek,10 July 2010] The point is: There is no single technique that can be taught that provides individuals with a specific, desired level of creativity. Bronson and Merryman agree that creativity is learnable; but they also note that certain people will always have advantages over others (just like tall basketball players have certain advantages over shorter ones). Idea factories and idea entrepreneurs do have a role to play. They awaken people to new possibilities and that is always an invigorating exercise.