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21 posts from July 2011

July 29, 2011

Trucking Safety and the Bottom Line

Like all commercial enterprises, trucking firms are in business to make a profit. Without trucking firms, the U.S. economy would collapse. Rising costs, however, concern both trucking firms and companies that rely upon them to transport their goods. Like other economic sectors, the Great Recession was hard on the trucking industry. Fortunately, things look to be improving. "Seventy-one percent of trucking company executives surveyed by GE Capital, Transportation Finance expect business conditions to improve in 2011, but they are concerned about the impact of external and internal factors on their profit margins. The rising price of diesel, a nationwide shortage of drivers and the twin costs of complying with government regulations and maintaining their own aging fleets are all significant concerns." ["Positive Outlook for Trucking Industry Tempered by Rising Operating Expenses, Survey Finds," SupplyChainBrain, 28 April 2011]

Among the internal and external factors that trucking companies must consider is safety. Every good trucking company has a risk management program that includes maintenance of vehicles and operator safe driving practices. Safety is high on the list of risk factors because lawyers are gunning for companies operating big rigs. We've all seen commercials featuring lawyers begging potential clients to contact them if they have been in an accident with a tractor trailer. They believe that trucking companies and their insurers have deep pockets. The following video is typical of such commercials.

You can't blame lawyers for seeking clients and you certainly can't blame victims for seeking damages. Accidents do happen. As a result, trucking companies must do everything they can to protect themselves as well as the public. According to the GE Capital survey, "executives said their biggest challenge will be recruiting and hiring quality drivers." The operative word in that sentence is "quality." Quality drivers have superior driving skills as well as a willingness to follow company policies. Trucking executives also told pollsters that "they are concerned about the operational costs of complying with recent government regulations related to the hours that drivers may work and the reporting of safety, compliance, vehicle, driver and regulatory violations to the Federal Motor Carrier Safety Administration, which regulates the U.S. trucking industry."

There is likely to be a lot of frustration involved in complying with new federal regulations. The following story is just one example:

"Keith Tuttle manages a fleet of trucks he says is making a narrow profit hauling empty aluminum cans from manufacturers in northwest Ohio to beer and soda makers in New Jersey, a 550-mile trip that takes 11 hours of driving for next-day deliveries. The trucks return with full cans for retailers in Ohio. But under proposed federal rules aimed at improving highway safety by limiting daily driving hours for commercial truckers, Mr. Tuttle's drivers would get only about as far as Harrisburg, Pa., about 60 miles short of their destination, before having to take a break for the day." ["Truck Firms Gird for New Limits," by Angus Loten, Wall Street Journal, 7 July 2011]

Although making a driver stop 60 miles short of his or destination sounds illogical, "Federal regulators say the measures are necessary to prevent highway fatalities caused by truck-driver fatigue, which was cited as a possible cause in the deaths of six people [in June 2011] when an 18-wheeler plowed into an Amtrak train in Nevada. ... In announcing the proposed new rules last year, Transportation Secretary Ray Lahood said a 'fatigued driver has no place behind the wheel of a big commercial truck.' He said the department was committed to hours-of-service limits that ensured drivers were rested and alert." Trucking executives like Tuttle, however, believe that the old regulations were working just fine. Loten reports:

"According to Transportation Department data, the number of highway fatalities involving trucks has declined over the past decade, hitting a record low of 2,987 in 2009, down from 4,204 in 2007. Over the same period, the number of truck accidents that caused injuries dropped to 51,000 from 72,000."

Although 4,204 annual fatalities are still way too many, given the fact that the numbers are trending in the right direction, trucking firms wonder why the new regulations were deemed necessary. "They say the burden of the new rules would fall hardest on small trucking firms, which wouldn't be able to adapt to them as readily as larger companies with fleets of tens of thousands of trucks." Loten continues:

"The rules, proposed in December by a Transportation Department agency, would cut the daily driving limit for truck drivers to 10 hours from 11 hours. They would require drivers to be off duty for 34 hours, including two full nights, once they reached their driving limit for the week. The agency also has proposed shrinking work shifts for truckers, which might include loading or unloading, to 13 hours a day from 14 hours and requiring a 30-minute break after seven straight hours on the road. Trucking companies would face fines of as much as $11,000 for exceeding the new limits."

Joe Rajkovacz, director of regulatory affairs at the Owner-Operated Independent Drivers Association, claims that "horrific crashes like the one in Nevada have given the trucking industry an image problem it doesn't deserve." He told Loten, "It's easy to beat up on big bad trucks, but the reality is very different." I would venture to say that most big rig drivers are professionals who are proud of their driving records. Reality television shows like Ice Road Truckers have even made celebrities of some of them. Professional truck drivers are no happier to see big rigs involved in accidents than anyone else. Nevertheless, the new regulations probably rub some of them the wrong way as well.

Even if the new regulations had not been put in place, economics might have made the highways a little safer. According to Jeffrey Ball, companies are imposing speed controls on drivers to cut fuel costs. "Safety advocates say slowing down 18-wheelers saves lives as well as fuel." ["Firms Put Brakes on Truckers," Wall Street Journal, 11 July 2011]. Ball reports that truckers like Gary Vann pine "for the days when [they] could put the pedal to the metal ... and hurtle down empty stretches of highway at 100 miles per hour," but those days are over because going fast sucks up fuel. Ball continues:

"Several big companies have tweaked the computerized governors on their trucks' engines in recent months, dialing down the top speed. Mr. Vann's employer, Titan Transfer LLC, cut it to 65 mph from 70 mph. Titan also drops extra cash on drivers who know how to get the best fuel economy out of their rigs, and puts extra pressure on the leadfoot."

Since most drivers are paid by the mile, slowing down doesn't make them very happy and it can put a significant crimp in their take-home pay. Ball continues:

"To truckers across the U.S., the new controls—the industry's latest attempt to wring better economy from its fleets—spell the end of a romantic age, powered by cheap diesel, when drivers could do pretty much as they pleased on the open road. Gone are the days of open-throttled hauling made famous by 'Smokey and the Bandit,' the 1977 movie starring a suave Burt Reynolds, in which a tractor-trailer shreds the speed limit on a cross-country beer run. At highway speeds, every decline of five mph improves an 18-wheeler's fuel economy by about half a mile per gallon. Titan spends roughly $24 million a year on diesel and expects 'huge' savings from the five-mph cut in its trucks' top speed, said Tommy Hodges, the company's chairman, who declined to give specific numbers. Mr. Hodges said Titan was trying to teach its drivers to cruise, as much as possible, at a steady speed instead of constantly speeding up and then slowing down, which slurps fuel. The ideal, he said, is to drive 'like there's an egg under the accelerator.'"

During the Cold War, President Reagan, speaking about nuclear arms agreements with the Soviets, famously said, "Trust but verify." That could well be the motto of some trucking firms. According to Ball, "today, a driver's every move is electronically recorded and relayed back to the dispatch center, where supervisors pick the data apart." He continues:

"Key to the system is a gadget some drivers liken to Big Brother: a black box in the cab that's wired to a satellite dish near the roof and beams all the juicy details back to the company in real time: the truck's location, its speed—even what gear it's in, as trucker Doug Andersen learned the hard way last month. Mr. Andersen, whose truck is governed at a maximum of 65 mph, was cruising downhill on Interstate 15, heading from California to Utah, when he slipped his rig into what truckers call 'Georgia overdrive,' a guerrilla move to override an engine's governor. He shifted the moving truck into neutral, letting gravity speed it up. When the speedometer neared 80 mph, the legal speed limit on that stretch of road, a red light flashed on the gray, tablet-size computer wired into the truck's dashboard. Snagged by his superiors, who call the move dangerous because it makes an 18-wheeler hard to control, Mr. Andersen pulled his truck over and called the dispatcher for his tongue-lashing."

Like it or not, technology in the cab is here to stay. Blog reader Rajiv Rao contacted me about another technology that can be used to enforce safe driving policies and why such a technology is important for trucking companies. As his company's (ZoomSafer) site states, "Use of a cell phone while driving on the job is a common behavior in corporate America that poses massive risk to any employer who permits it to happen." To drive the point home, ZoomSafer produced the following video.

I think that it is fair to say that most people grate under constant scrutiny. And who likes to be inconvenienced by not being able to use mobile devices while driving? The fact of the matter is, however, that the cost of driver distraction can be very high indeed. The number of horrendous accidents over the past few years that have involved "texting" drivers (most of them not truck drivers) has turned the public against the practice. Despite the fact that 1 in 4 drivers admit to texting while driving, "an overwhelming majority of Americans believe that texting while driving should be illegal, a ... CBS News/New York Times survey finds, with 97 percent saying the practice should be outlawed. A mere one percent says that the practice should be legal." ["Poll: Texting + Driving Should be Illegal," CBS News, 28 October 2009] Even though the public understands how vital the trucking industry is to the country's economic well-being and their own quality of life, when it comes to safety on the roads, big rigs are often viewed as a problem. As a result, a continued emphasis on safety is in a company's best interests and an essential way to help protect its bottom line.

July 28, 2011

Does Your Company Need a Chief Innovation Officer?

Mark W. Johnson, Chairman and Co-Founder of Innosight, an innovation consulting and research firm, writes, "Ten years ago, you'd have been hard-pressed to find a chief innovation officer on any company's leadership team. Today such leading companies as AMD, Citigroup, Coca Cola, DuPont, Humana, and Owens Corning each have one." ["The Role of the Chief Innovation Officer," Bloomberg Businessweek, 3 November 2010] Despite the fact that a few leading companies have such a position, many companies simply don't believe they need to create such a position. Thomas D. Kuczmarski, founder and president of Kuczmarski & Associates, an innovation consultancy based in Chicago, wrote back in 2009, "I often debate with chief executives about the importance of hiring a chief innovation officer. They often don't see the need. They argue that innovation is everybody's job. Or they confuse it with research and development and say it already is being done." ["Obama Needs a Secretary of Innovation," Bloomberg BusinessWeek, 11 February 2009]. Kuczmarski continues:

"Innovation is a multidisciplinary and disciplined process that needs to be managed and led. If everybody is in charge, then nobody is, and little gets accomplished, if anything at all. Or worse ... there is a lot of action based only on guesswork, not on a careful exploration of what really is needed. Now, in the midst of recession, companies need to innovate more than ever. Yet too many are choosing instead to hunker down, postpone investments in R&D, and avoid risk-taking until the market has stabilized. The companies that continue to build an innovation culture and make modest investments to keep the innovation pipeline full will be the ones that enjoy a big competitive advantage a few years from now."

Johnson agrees that some companies continue to question the need for a chief innovation officer. He writes, "Organizations have been innovating as long as companies have existed. Why the new role now?" He claims the reasons are many but "three stand out." They are:

"• First, the across-the-board digital revolution that began in the early 1980s intensified greatly in the dot-com era of the 1990s, during which the rate and scale of disruption brought about by innovation was massively accelerated. In 1958, the average length of time a company remained on the Standard & Poor's 500-stock index was 57 years. By 1983 it had dropped to 30 years. In 2008, it was just 18.

"• Second, companies have increasingly come to understand the commercial potential of sustainability innovations to reinvigorate mature industries and create entirely new ones. GE's commitment to 'Ecomagination' only begins to suggest how thoroughly sustainability has entered the commercial mainstream and raised innovation to a strategic imperative.

"• Third, we now have a much better understanding of the dynamics of innovation, as well as the scale of the threats and opportunities it presents, thanks to investigators and practitioners such as Clayton Christensen of Harvard Business School (a co-founder and board member of Innosight), whose seminal work on disruptive innovation has not only gained wide currency, but also been tested in numerous ventures. As a result, companies understand better how to manage innovation—and why they must do so at the highest levels of leadership."

Having someone in your company whose job it is to make sense of the big picture is becoming more important. Professor Roberto Verganti, professor of management of innovation at Politecnico di Milano, claims, "There are so many opportunities, technologies and ideas, all of which are easily accessible. So, the key challenge for companies is not having the ideas, but making sense of them and having a vision. The companies that are most successful are the ones that understand the meaning behind the technology." ["A new route from idea to reality," by Philip Delves Broughton, Financial Times, 30 November 2010] Johnson insists that the CIO's main function is to help a company understand the possibilities. He continues:

"Because the CIO position is relatively new, its precise contours are still emerging. While each company is different and the role of innovation will necessarily vary from company to company and industry to industry, there are three critical areas of innovation for which all top innovation executives should take responsibility: language, learning, and long-term structure."

It probably doesn't surprise you that the "long-term structure" of corporate innovation programs would be included in the chief innovation officer's job description. The fact that language and learning were also included might have been more surprising. Johnson explains why these are important, beginning with the language. He writes:

"A common language that is used across the entire organization helps frame a company's principles of innovation. The starting point for that shared language is a practical definition of innovation. The definition I favor depicts innovation as something new: a product, service, process, business model, or combination thereof that can be commercialized because it solves the problem of a 'job to be done' for the customer. Whatever language is used, it should distinguish between innovation in the core business and innovation that creates platforms for new-business creation. That distinction is critically important because the chief innovation officer's raison d'etre is to lead new-business innovation that will ensure the company's continued survival and growth."

Johnson makes some very important points in that short paragraph. First, he makes the point that in order to be classified as an innovation, an idea must be something "that can be commercialized." As I have noted before, the formula definition of innovation that I prefer is: innovation = new x valuable x realized. If any of those parts is missing (i.e., if any of those traits = 0) then you can rest assured whatever you're discussing is not an innovation. Second, he pointed out that there is a difference between incremental innovation (i.e., "innovation in the core business") and new or disruptive innovation (i.e., "new-business creation"). The main point, of course, is that to be most effective everyone in the company should be speaking the same language in order to avoid confusion. Not only can the chief information officer be the person that ensures a common language is used within the company, he can make sure that outsiders who provide information to the company use appropriate language as well. Broughton writes:

"Prof Verganti [asserts] companies must listen to 'interpreters' – individuals in­side and outside the company capable of un­derstanding cultural and social forces beyond the immediate world of technology. These are not traditional market researchers, but people from other industries and professions who look at what you are doing with fresh eyes."

Johnson writes that "to be effective, this common language can't be handed down. It must be hammered out with executives, managers, and subject-matter experts at all levels in workshops and strategy discussions, so there can be no mistaking what is meant when the subject of innovation is on the table." That is why training becomes of the primary tasks of the chief innovation officer. Training, Johnson writes, is necessary so "that the company's language of innovation and the principles it embodies are widely disseminated and practiced." He continues:

"A shared language can help sort out the seemingly conflicting imperatives of operating (and innovating) in the core while also planting seeds for future growth. Innovation in the core business is often largely a matter of executing processes in a traditional team structure through the company's traditional channels and partners. People working on that side of the house can expect their performance to be judged in traditional ways. New-business innovation, however, needs to be managed and measured in an entirely different way because it involves testing assumptions, adjusting when assumptions prove unwarranted, and changing course quickly and creatively as new knowledge is gained. That is uncomfortable territory for many people, unless they know that these distinctions—and dual management systems—are understood and underwritten at the highest levels of the company."

In a number of past posts, I have stated my support for "what if" exercises. One of the valuable things that can result from such exercises is that corporate assumptions can be explicitly identified and tested. Johnson also believes that testing assumptions is critical. In addition, he believes that prototypes can be used to help test them. I'm also a fan of prototypes. Too often when you get a group of people around a table to discuss new ideas, the discussion can break down into name calling and personal attacks as people take sides for and against the idea. Put a prototype on the table and it becomes the focus of the discussion.

Johnson reports that "managing the learning process when innovating for new-business growth is the second critical area of responsibility for the chief innovation officer." He explains:

"Core-business innovation proceeds largely on established knowledge about markets, customers, competition, and capabilities, which can be extended to bring something new to market at scale. New-business innovation proceeds in small-scale, controlled experiments conducted in a foothold market—a small geographic region or customer group that will serve as a low-cost laboratory. Top innovation officers need to keep such incubation efforts free of interference from the core business and allow the innovation team the autonomy to determine quickly if the idea is viable, needs to be modified, or should be abandoned. These demonstration projects, overseen by the chief innovation officer, are designed to convert assumptions into knowledge of what works and what doesn't. For example, a prototype might help determine customers' willingness to pay for a product or service, along with how they use it, their frequency of purchase, and their willingness to make certain trade-offs among features, price, and convenience. Such experiments might be supplemented with focus groups, secondary research, and the involvement of potential customers in the design of a product or a business. The knowledge that emerges can then be transferred across the company, which requires the chief innovation officer to work closely with the organization's chief knowledge officer or the equivalent."

A chief innovation officer should be given the authority to kill ideas and programs. Ending programs is not as easy as you might think. For more on this topic, read my post entitled Killing Ideas as Part of the Innovation Process. Johnson notes that a chief innovation officer needs a thick skin because the failure rate of new projects, which he calls "a critical learning metric, is likely to be high." He estimates that only 10 percent of new ideas work out. Using a "test-and-learn approach," Johnson believes a good chief innovation officer can increase that rate to around 30 percent. To read more on the topic of learning from failure, see my post entitled Learning from Failure.

Johnson concludes his article with a discussion of innovation structure. He writes:

"Long-term structure, the third critical area of a top innovation officer's responsibility, translates the language of innovation and its focus on learning into a repeatable process, using structure to unlock creativity. With a budget, a clear charter, and distinct governance measures and milestones, new-business innovation moves from the ad hoc to the institutional. That structure depends not just on processes, but also on people. The top innovation officer has to cultivate the right talent—identifying people who can deal with ambiguity, learn from failure, and are comfortable working in an area where expectations and measures of success may differ sharply from those of the core business. That executive must make sure that the careers of these uniquely talented people won't be tainted by the frequent failure associated with new-business innovation. A chief innovation officer who assembles and presides over innovators of all stripes with a common language and approach to learning—succeeding together in a structured environment of highly productive and appropriate rules and norms—will create a culture in which both the ongoing business and new growth can flourish."

I agree with everything that Johnson says about the importance of fostering the right innovation structure and culture. Getting it right, however, is not a simple matter. A chief innovation officer needs to decide what innovation should be done in-house and what innovations should be adopted from elsewhere. Eric von Hippel, a professor of technological innovation at the MIT Sloan School of Management, told Broughton that a company should divide its re­search and innovation tasks "into those it can solve internally and those that can most effectively be solved outside." Broughton continues:

"The ones that can be solved within are 'dimension-of-merit' im­provements such as better screen resolution, ergonomics or interface des­ign. Those that must be solved outside are those that involve new customer needs. ... 'Senior managers have to recognise that the innovation system has to be fundamentally reworked,' says Prof von Hippel. 'It's not a matter of tweaking. There is a fundamental new paradigm out there.' This new model was created by falling design and communication costs, which have en­abled more people to be part of the process. Prof von Hippel says managers need to venture out to the leading edges of their market and engage with users. He calls it 'democratising innovation'."

Professor Andrew Hargadon, from the UC Davis Graduate School of Management, agrees with von Hippel that a combination of inside and outside innovation is required in today's world. He told Broughton, that "rather than reorganising existing assets to try to come up with a new vision ... companies must have the vision and then assemble the assets needed from outside and inside in order to make it real." By empowering someone to make sense of the big picture, companies can minimize the effects of business silos and turf wars that reduce effectiveness and stifle innovation. The larger the company, the greater the need for such a position.

July 27, 2011

Have You Heard about Supply Chain Control Towers?

People are always coming up with new terms to sell their products or services. However, when one starts hearing the same term from different quarters, it's generally time to start paying closer attention. Supply chain "control tower" is one of those terms. James A. Cooke, Editor of CSCMP's Supply Chain Quarterly, believes that control towers could be the next big thing in supply chain management. ["The next big things: 'control towers' and demand shaping," 20 June 2011] Cooke writes:

"In the supply chain sense, a control tower is a location that provides visibility into inbound and outbound distribution flows—much as a control tower coordinates the movement of aircraft to and from an airport."

You hear the term "visibility" as well as the term "transparency" in most supply chain management discussions nowadays. If Cooke and other analysts are correct, you will soon be hearing the term "control tower" just as often. Cooke indicates that one global company that successfully uses control towers is Procter & Gamble. He reports that P&G "has set up 'control towers' to help it manage its distribution networks in emerging markets in Eastern Europe, the Middle East, and Africa." He continues:

"Although a number of companies in Europe have adopted the control tower concept, P&G's case is particularly interesting because executives believe that this approach will help the consumer goods giant control distribution costs and manage supply flows into emerging markets."

After reading Cooke's short piece, supply chain analyst Trevor Miles wrote, "It is amazing how there can be a synergy that drives several parties to coalesce around the same idea. ... Well somehow the notion of a supply chain control tower has gained broad interest lately across a broad spectrum of industries." ["The Next Big Thing: 'Control Towers'," The 21st Century Supply Chain, 5 July 2011] He continues:

"From my perspective, the application of the control tower concept only to distribution is a fairly narrow use of a very powerful concept. A multi-tier control tower in the high-tech/electronics space that spans customer location, the OEM, several contract manufacturers, and component suppliers has much greater likelihood of both success and benefit. Time and time again I hear about visibility being a problem in this environment. What better way to get visibility than to have a single system that sucks in data from multiple systems of record (not just ERP) to provide this visibility? But visibility is not enough. Don't get me wrong, knowing about an issue is hugely better than not knowing about an issue until only after you feel the impact. But even better than knowing about an issue is knowing about the consequences of that issue. Will it affect customers service? Will more material be required? Will we need an extra shift? Will we miss the quarter? Without this type of consequence analysis, knowing of the issue itself is relatively uninteresting and of little value (beyond the people directly affected that is.)"

As usual, Miles makes a great point. Knowledge is only valuable if it can be acted upon. Air controllers need to know the speed, direction, and altitude of aircraft so that they can keep them safe. They know the disastrous consequences of two aircraft trying to share the same airspace at the same time. Along those same lines, Miles is insisting that companies need to know enough about their supply chains that they can avert disastrous consequences. He discusses the importance of "what if" analysis -- something I discuss more fully in a post entitled Modeling "What If" Scenarios. Miles writes:

"Even better, is to be able to perform 'what-if' analysis to determine the best course of action to avoid the risks and negative consequences of events. But in a multi-tier, and therefore multi-organization, supply chain there is no obvious 'best way' to resolve the issue in the best interests of all the participants. There is a natural tension between the objectives of the different tiers that has to be negotiated. However, in a multi-tier supply chain, how do you determine who is impacted and who needs to take action? After all, without this knowledge how is resolution possible?"

Miles points out that control towers are designed to answer those kinds of questions -- at least control towers designed to go "beyond simple visibility." He writes, "Visibility is a start, consequence evaluation the next step, 'what-if' analysis leading to resolution is the third step, and multi-enterprise collaboration the final stage and most complete description of a control tower." Miles' big concern is that control towers require collaboration and collaboration requires trust. He is not sure that trust between supply chain stakeholders is getting any better despite everyone's belief that collaboration will be an important differentiator in the decades ahead. Although the notion of control towers takes on new significance as a result of emerging technologies, Miles asserts:

"We have been talking about control tower like concepts for 50 years ever since Jay Forrester published his work in industrial dynamics – 'Industrial Dynamics-A Major Breakthrough for Decision Makers,' in: Harvard Business Review, 1958, Vol. 36, No. 4, pp. 37–66 – and the bull whip effect in which he states that:

Company (and supply chain) will come to be recognized not as a collection of separate functions but as a system in which the flows of information, materials, manpower, capital equipment, and money setup forces that determine the basic tendencies towards growth, fluctuation, and decline.

"... We need to get from 'this is what is happening' to 'who needs to know.' ... I think we have some way to go before this all gels into something really significant, but it is very exciting to be part of the process, to see customers and prospects exploring control towers and making the first steps to meaningful adoption, well beyond simple visibility."

One comprehensive overview of control towers can be found in a position paper written by Capgemini analysts Gaurav Bhosle, Prashant Kumar, Belinda Griffin-Cryan, Rob van Doesburg, MarieAnne Sparks, and Adrian Paton entitled Global Supply Chain Control Tower. You can register to download a copy of the paper. In the introduction to the paper, the authors write:

"Supply Chain Visibility is the key enabler for managing a business both within the organizational boundaries as well as across the boundaries. This visibility provides speed, reliability and flexibility in order to gain a competitive advantage in the form of well controlled and managed supply chain functions. In response to the need for Supply Chain Visibility, the leading Supply Chain Visibility principles are increasingly being embodied in Supply Chain Control Towers. A supply chain control tower is a central hub with the required technology, organization and processes to capture and use supply chain data to provide enhanced visibility for short and long term decision making that is aligned with strategic objectives."

The authors claim that good control towers rest on three pillars, people, processesses, and technology (as depicted in the graphic below).

Control Tower 01

There is certainly nothing new about those pillars. They are the same pillars that undergird most successful business activities. For example, Karin L. Bursa, Vice President of Marketing at Logility, insists that a successful S&OP system will take into account "people, process, and technology" ["A Foundation for Successful S&OP," Supply Chain Digest, 10 February 2011]. She writes:

"This trio of people, process and technology, is the foundation for success. This foundation will provide needed structure along with the flexibility to evaluate and respond to a variety of business challenges and opportunities."

Perhaps the most important thing that a control tower can do is breach barriers created by organizational silos. The Capgemini analysts write:

"Control Towers are cross-divisional organizations with system integrated 'information hubs' that provide Supply Chain Visibility. These hubs are used for gathering and distributing information, and allow people trained to use these visibility capabilities to detect and act on risks or opportunities more quickly. Control Towers are typically set-up to monitor, measure and manage transport and inventory movements across the supply chain."

They identify five functions that can benefit from the creation of a control tower. They are: planning & routing; auditing & reporting; forecasting; event management; and decision making.

Control Tower 02

The report goes on to describe a number of benefits that are obtained from implementing a control tower. The benefits are detailed in four broad areas: general supply chain operations, outbound activities, manufacturing, and inbound operations. Those benefits include:

General Operations

• Integrated Supply Chain with an ability to retrieve information
• Reduced compliance Penalties
• Improve decision-making capabilities
• Reduced network failures, increased network visibility and responsiveness
• Respect customer commitment: schedule, costs, quality and Improved customer satisfaction

Inbound Operations

• Optimal inventory levels and reduced buffer inventory
• Synergies in procurement transport carriers leading to reduction in Transportation Expense
• Reduction in total landed costs & increase On Time & In Full deliveries
• Helps to change sourcing strategies, shift supplier allocations, modify commercial terms, re-engineer a logistics process or swap out a logistics partner

Manufacturing

• Awareness of [work in progress] & improved productivity
• Manufacturing in optimal way over plants operating globally
• More accurate demand planning, better scheduling, reduction in cycle times, reduced inventory levels and timely and complete management information

Outbound Operations

• Improved load efficiency in Outbound
• Improve transport efficiency using best-in-class carriers and redesigning transport solutions
• Ability to predict right ETA for customers

The study concludes with some recommendations about how to set up a control tower and a case study about how Samsung improved its operations after establishing one. Since Enterra Solutions creates the kind of technological solutions well-suited for use in supply chain control towers, this is a topic I will be watching with keen interest.

July 26, 2011

Is RFID Tagging Dead in Consumer Packaged Goods Retailing?

Dan Gilmore, Editor of Supply Chain Digest, asks, "Has there been anything much stranger in the supply chain than the tale of RFID in the consumer packaged goods to retail supply chain?" ["RFID in CPG to Retail - What Really Happened?" 10 March 2011] He continues:

"The journey has been from visions of supply chain transformation to now, literally, the concept being at a near dead standstill - though there is clearly a connection to today's very lively efforts with RFID for 'item-level' apparel. It's worth exploring what happened, and why."

Despite the stagnation noted by Gilmore, researchers and companies continue to work on RFID technology. For example, Ben Coxworth reported on an RFID device "developed at Spain's Public University of Navarre (UPNA )." ["Wireless sensors could aid shipping industry," Gizmag, 2 June 2010]. Coxworth continues:

"If you were shipping, say ... a cargo container of pineapples from Hawaii to Poland, you would probably want to know what was happening to those pineapples along the way. For instance, were they allowed to get too hot or too cold? Did they clear customs? Did they follow the planned route? Using wireless radio frequency identification sensors recently developed at Spain's Public University of Navarre (UPNA ), you could know all these things and more, in real time. The sensors and their data network have been in development since 2007, when a consortium of corporations and research facilities was established to develop the technology. A member group of that consortium, Navarre-based TB-Solutions, called upon UPNA to develop the software. Now, prototype sensors have been created and put to the test inside containers at the Port of Valencia. ... TB-Solutions made a point of installing security mechanisms in the system, so that outside parties can't intercept the data as it's being transmitted. As far as they know, theirs is the only such system to offer this feature."

The benefits of RFID technology are generally understood; so we find ourselves returning to Gilmore's question about why the technology has not found greater acceptance. While the simple answer is RFID tags still cost too much, Gilmore believes there are other reasons as well. He summarizes his thoughts this way:

"1. CPG companies and WalMart did not do enough 'hard math' to really understand the returns before making substantial investments in RFID. Other retailers sat back and let WalMart do the 'dirty work.'

"2. There was a 'heard' mentality that contributed strongly to this, supported by the self-interested RFID hype machine in some parts of the media and consulting community.

"3. Many CPG companies did and continue to believe there is great ROI in some product categories, the most prominent being in promotional execution but also others. But WalMart basically gave up on those (not clear why) and no other retailers have stepped up. Manufacturers can't do it without retailers.

"4. WalMart did not design or execute its program well, especially in having a mass mandate across hundreds of suppliers, when P&G and others were arguing for a segmented approach based on value. I believe the value for these 'advantaged' products (P&G's term) is still there. This is more the approach WalMart is smartly taking now with apparel.

"5. The really big losers were the venture capitalists who took a billion dollar bath funding dozens of RFID companies who later went under or sold for pennies on the dollar, as the WalMart bonanza never occurred. But their contributions pushed the technology along dramatically faster than would have happened without WalMart's unsuccessful program., the benefits of which others are enjoying today."

Marisa Brown, director of APQC Knowledge Center, and Rob Spiegel, a knowledge specialist report, "Research shows that more than 60 percent of organizations do not yet have an RFID tagging program in place." ["When the Benefits Are There, Why Don't More Companies Use RFID Tagging?" SupplyChainBrain, 17 February 2011] They go on to report, "Many of the organizations that have implemented RFID have done so to satisfy customer compliance demands and have not used their RFID systems to enhance their own warehouse and logistics operations." With over a billion dollars already invested in the technology, I doubt that the technology is dead (or dying). In fact, the folks at SupplyChainBrain insist that "RFID is still in its early adoption stage." The primary benefit of adopting an RFID strategy, they write, is "improved distribution processes." They explain:

"Working with the Council of Supply Chain Management Professionals (CSCMP), APQC is able to bring additional information to light on the question of the benefits of RFID. Research co-sponsored by CSCMP, the Voluntary Interindustry Commerce Solutions Association, and the University of Arkansas found that RFID used at the pallet and case level shows benefits in reduced stockouts and improved inventory accuracy, which is one of the keys to an efficient and effective supply chain."

The article goes on to describe a retailer's worse nightmare -- an unsuspected out-of-stock situation -- and how RFID tagging "is able to eliminate 'frozen' inventory." It explains:

"In some out-of-stock situations the system 'thinks' ample product is available when it is not. The inaccuracy could cause the system to not place a re-order for the product. Consider an example where the system thinks it has six units of inventory, the re-order point is five units, and the store actually has none. Since the store can’t sell what it doesn’t have, the number in the system will not get checked, e.g., it's frozen, and no re-orders will be placed. This is the ultimate out-of-stock situation – the store has no product and will not order any product because the system thinks it has more than the re-order point. In the retailer in this study, after implementing RFID, the number of frozen items dropped to zero and stayed there. With RFID, in this case, all occurrences of frozen out-of-stocks have been eliminated."

Based on current research, reporters at SupplyChainBrain conclude:

"The use of RFID in the retail space has potential benefits for customer service. Accurate and timely information about product order, delivery, location, and stock level help retailers to have the products their customers want when they want it."

RFID technology also holds promise to help reduce retailer deductions for manufacturers. Joe McKinney, a Vice President at System Planning Corporation, wrote a column in 2005 "for a now defunct RFID magazine on a major cost savings opportunity for consumer goods manufacturers." In that article, he "points to the opportunity of RFID to dramatically reduce the discrepancy between what a manufacturer thinks it shipped versus what the retailer says it received - leading to costly 'invoice dedications' from the retailer." ["Was Reduction in Invoice Deductions the Magic Bullet for RFID in Consumer Goods to Retail?" Supply Chain Digest, 30 March 2011] This benefit alone, McKinney asserts, "could perhaps easily have driven an ROI for manufacturers from their RFID investment." McKinney's article is re-posted in its entirety in the Supply Chain Digest article.

For retailers and manufacturers, RFID technologies that use near-field communication (NFC) tags and inlays hold a lot of promise. "UPM RFID, a developer of technology tied to radio frequency identification applications, ... is working with leading NFC smartphone manufacturers to ensure the interoperability of products." ["UPM RFID Develops New Tags for Multiple Applications," SupplyChainBrain, 12 May 2011] To learn more about near-field communication, read my post entitled The Age of Mobile Payments is Upon Us. Supply Chain Digest reports, "The tech industry is hot with rumors that Apple plans to announce a highly innovative use of RFID and 'near-field communications' when it releases a new, fifth generation version of its iPhone." ["Not Clear What it Is, but Rumors Swirl that Apple is Building Major New RFID/Near Field Communications Innovation for iPhone5," 1 March 2011] The article continues:

"Neil Hughes ... notes that Apple has filed patents related to NFC technology, including one that concerns enabling users to obtain information about a range of products wirelessly and instantly. Examples of potential uses for the service, called 'Products+,' included obtaining information about a product to receiving promotions and coupons. That is increasingly being done using bar codes (QR Code), in which the scanner on a cell phones reads the code and launches a web page with such information and offers. What would be the advantage of an RFID-based approach to this technology? That isn't clear, except that with RFID marketers could know precisely where the consumer was when the read/scan was made, which may provide some useful information to them."

As Gilmore noted at the beginning of this post, the apparel industry is one area where RFID tagging is making headway. SupplyChainBrain reports:

"American Apparel, a vertically integrated clothing manufacturer and retailer based in Los Angeles, is ramping up its item-level tagging initiative, having just signed an agreement to deploy Xterprise's Clarity Advanced Retail System (ARS) software at 50 of its retail locations—25 of which will be located in the United States, the remainder overseas—by the end of this year. This will bring the total number of RFID-enabled stores operated by the company up to 100. The firm, which attributes improved stock levels and store performance to the technology, has already deployed radio frequency identification at 50 of its retail stores, most located in the United States." ["Clothing Manufacturer, Retailer Decides to Go All Out with RFID Implementation," 2 May 2011]

In another article SupplyChainBrain reports:

"Hosiery and intimate apparel manufacturer Kayser-Roth is providing item-level RFID UHF EPC Gen 2 tagging of men's socks packaging as the products are shipped to one of its customers. But rather than simply applying the tags merely to meet the retailer's mandate, Kayser-Roth is testing and verifying them as well during product audits, using RFID readers at three specific points of manufacture to verify that the tag is working and to ensure that the correct tag has been applied to each product." ["Apparel Manufacturer Takes First Steps Toward RFID Usage," 17 May 2011]

I tend to agree with the analysts at SupplyChainBrain that "RFID is still in its early adoption stage." Almost every respected supply chain analyst I've read predicts that supply chain visibility will be an essential differentiator in the future. RFID tagging is ideally suited to help provide some of that visibility for product lines that can afford to bear the costs of RFID tagging.

July 25, 2011

Logistics and Distribution Models

With gasoline and diesel prices hovering between $3 and $4 per gallon, some trucking firms have reduced capacity to ensure that more loads are filled. With capacity at a premium and rates high, supply chain professionals continue to examine ways to reduce transportation costs. This is just one of many challenges with which they must wrestle. Those challenges become even more difficult if company executives fail to heed recommendations. Mark Meier, Manager of Implementation and Assessment at CH Robinson Worldwide (CHRW), claims that supply chain professionals often have a difficult time convincing C-level executives to take recommended courses of action because they don't understand logistics. He writes, "Literacy rates are high in the C-suite when it comes to functions such as sales or marketing, but in many companies logistics terms don't tend to trip off the tongue in senior-level meetings." ["Change Agent: A Challenging Role for Freight Management," Logistics Viewpoints, 23 June 2011] Meier provided the following example of what he is talking about:

"In a recent project a company was having problems with the cost of its outbound finished goods. The enterprise shipped raw materials into its facility by road, and the trucks usually left empty. An obvious solution – obvious, that is, to practitioners – was to use the empty trucks to carry finished goods on the outbound leg. But managers, even at a senior level, found it difficult to understand that they were already paying for empty backhauls and the outbound solution was a cost-effective strategy. Most freight managers would have discerned that in such a situation the carrier bringing empty trucks home was probably charging the shipper a rate premium based on their location. While the carrier was not overlooking the cost of positioning its equipment – it understood the importance of maximizing equipment utilization – the transportation buyer was seemingly unaware of this expense."

In order for the above example to work, of course, tractor trailer combinations hauling raw materials into the factory need to be the type required to haul finished goods outbound. Smart people, however, could easily find a compromise solution that would benefit both the manufacturer and the trucking company. Meier claims, however, that the smartest people sometimes aren't available. He writes:

"Departments that are detached from logistics and regard freight-related activities as being well beyond their sphere of influence may not be motivated to send their brightest folks to, say, the implementation of a new transportation management system. They might see trucks moving in and out of the company's facilities, but do not make the connection with their responsibilities."

The solution, Meier says, "requires effective education and communication, and working with customer stakeholders to identify and recruit the right team members." He concludes:

"The management of freight affects virtually every part of an enterprise. Helping organizations to appreciate this might be the most difficult change management challenge of all for transportation professionals."

With transportation costs remaining high, one needs to ask, "Are things changing in the transportation management arena?" According to Adrian Gonzalez they are. ["Take a Different View of Transportation Procurement Solutions," Logistics Viewpoints, 16 March 2010] He writes:

"Historically, transportation procurement was a strategic engagement for most companies, a process conducted every two years or so. At the end of the engagement, companies would enter their new rates and preferred carriers into their TMS, or they would publish a routing guide, and then they would focus on execution until the next contract renewal cycle."

The latest TMS trends, Gonzalez writes, involve terms like "self-service/do-it-yourself and software-as-a-service." One reason that transportation management systems are becoming more tactical than strategic is because the current logistics landscape is ever changing. He continues:

"Things change after a transportation procurement engagement is completed: capacity requirements in a given lane might be significantly greater than anticipated; new lanes are added to your network; preferred carriers are rejecting too many tenders in certain lanes or their service levels are degrading; and so on. These are the type of performance data that companies should be tracking using their TMS dashboards (and if they are not using a TMS, well, shame on them!). Addressing these issues often requires conducting 'mini bids' to add capacity, find alternate carriers, and obtain rates for new lanes. And that's what these new breed of transportation procurement solutions are well designed to address—i.e., they are an affordable, easy-to-use-and-deploy alternative to spreadsheets and fax machines."

Once goods are out the door and loaded on a truck where do they go? Truckload shipments can go to a traditional warehouse/distribution center, a crossdock distribution center or direct to the retailer. How does a company decide which model is most effective and efficient? In the retail sector, crossdocking is the most common solution. According to the folks at Supply Chain Digest, however, outside of the retail sector, "examples of true crossdocking" are difficult to find. ["Understanding Retail Distribution Models," 4 January 2011] The Supply Chain Digest article focuses on the research of Dr. Kevin Gue of Auburn University. Dr. Gue explains the "three primary models for delivering goods to retail stores" this way:

"1. Traditional Warehousing/Distribution, in which vendors ship goods to retail DCs, where the goods are stored until store orders need fulfilled, where they are then picked (often using a 'wave process' for batches of stores) and delivered to the stores.

"2. Crossdock DCs, in which shipments from inbound suppliers are moved directly to outbound vehicles, with very little if any storage in between. In the best possible situation, products never touch the floor or a shelf, though some amount of staging is often used.

"3. Direct to Store Delivery, in which vendors ship goods directly from their own facilities to retail store outlets."

The Supply Chain Digest staff notes, "In reality, many if not most retailers probably use some type of hybrid system, with an increasing number of them, for example, running both crossdock and traditional distribution operations in a single facility, which many thought too difficult to manage in the past." The article discusses some other models as well:

"Home products giant Home Depot, as another example, is substantially through a multi-year project to transform its model from one in which some 75% of goods were delivered by vendors direct to its stores and 25% from Home Depot DCs to the exact reverse of that. Home Depot is using a new network of crossdock-focused Regional Distribution Centers (RDCs) to get that job done. Another model that is emerging is the so-called 'DC Bypass' approach for imported goods, in which import DCs would transload the arriving containerized goods for manufacturers and ship the imported products directly to retail DCs - and maybe even retail stores - without the products moving into the manufacturer's distribution network at all."

Returning to Dr. Gue's work, the article notes that Gue "has nicely summarized the pros and cons of each approach in a summary graphic, as shown below."

Retail_DC_Models

Concerning the chart and Gue's conclusions, the article states:

"Looking at the chart, it might initially appear that the traditional distribution approach is the most costly - and while it clearly is from a handling only perspective, there are other considerations, Gue says. Direct-to-store, he notes, has the disadvantages of some loss of control of stock availability, high costs of receiving at stores (imagine weekly shipments from every vendor), and often much higher transportation costs, since vendor shipments often use expensive less-than-truckload or parcel shipment modes. The crossdock model also has some downsides. It also sacrifices some inventory control by not holding buffer stock between the vendor and store, but unlike shipping direct-to-store it maintains transportation efficiencies by consolidating small shipments into full truckloads for store deliveries. While the benefits of reducing an entire layer of network inventory through the crossdock model are huge, there are other factors that must be considered, Gue says. For example:

"(1) Lead time from order to delivery at the store is longer than with traditional distribution, so stores typically have to hold slightly more stock to hedge against stockouts. If vendors are far away, lead time could be several days.

"(2) Unlike direct delivery from vendors, crossdocking requires the retailer to buy (or lease) and operate crossdocks, or to pay a third-party logistics provider to do so.

"(3) Crossdocking requires greater coordination with vendors, sometimes with painful details of implementation.

"Still, the trend clearly seems to be towards greater use of crossdocking in retail."

In a follow-on article, the staff at Supply Chain Digest examined Professor Gue's "thoughts on where the crossdock model usually has its best fit, and keys to making it a success." ["Where does Crossdocking have the Best Operational Fit?" 11 January 2011] The article continues:

"So where does crossdocking have the best fit in terms of retail distribution? Gue offers several guidelines:

"Use crossdocking for products with high, stable demand: If demand is fairly constant, then the inventory serves little purpose, and the product is a good candidate for crossdocking. If demand is highly variable or the cost of a stockout is high, then traditional warehousing is probably the best strategy, Gue says.

"Use crossdocking for products for which customers are willing to 'wait a few days': This is typical for larger purchase items such as major electronics or appliances. In fact, crossdocking is an essential strategy of Whirlpool's totally redesigned distribution network, enabling the appliance giant to deliver washers and refrigerators to every household in the US in just two days. Gue notes that when a 'stockout' in a store does not mean a lost sale, crossdocking can become very attractive.

"Push distribution systems should crossdock everything that can be sold in stores now: This model is especially associated with heavy discount retailers, such as Ross Dress for Less or TJMaxx, where merchandise is acquired at a discount and everything is pushed to the stores. Customers are used to constantly changing merchandise and inventories. Gue says warehouse club stores such as Costco and Sam's Club take a similar distribution approach for many of their SKUs. When customers have a low expectation that any particular item will be in stock, it is a 'perfect situation' for cross docking, Gue says."

Professor Gue states that "the crossdock model is an attractive and powerful option for many retailers," but he advises that "it has its share of challenges." Those challenges include:

"• Material handling decisions: Poor material handling practices can eat away at much of the potential crossdock savings. What the level of automation should be, especially for crossdocking at the carton level, is a key management decision. Dock congestion can be a big problem, Gue adds. Costco acquired special pallet jacks capable of moving four or even eight pallets at a time to power its crossdock operation, for example.

"• Cost analysis: Really understanding the potential savings overall and by product and/or vendor is not easy, especially as the inventory savings can be very difficult to estimate in practice. Gue notes Home Depot analyzed vendors one by one to determine which would participate in its new the crossdocking program. Where there wasn't a strong benefit, the vendors products would be kept direct to store or handled through traditional distribution.

"• Vendor management: Vendors play an essential role in a crossdocking program's success. Understanding each vendor's IT, value-added services, and overall distribution capabilities is essential to avoid many costly and unpleasant surprises down the road."

Like most segments of the supply chain, there is no silver bullet answer that covers all companies and all situations. Gue admits that "for most retailers, the right approach is probably a combination of all three" distribution models.

July 22, 2011

Entrepreneurism: The Importance of Networking, Part 2

In part one of this two-part series on networking, I talked about various networking venues you might consider. In this post, I want to discuss techniques you might try when you find yourself face-to-face in a networking situation. Colleen DeBaise claims, "Networking is one of the most valuable (and inexpensive) forms of marketing. Many successful business owners are master networkers who can walk into a room full of strangers, make a connection and handily attract a new client, partner or investor." ["How to Network – Live & In Person," Wall Street Journal, 26 October 2009] Not everyone, however, is a master networker. In another article, she observes, "Not everyone is comfortable at networking events." ["How to Network – When You're Shy," Wall Street Journal, 23 February 2011]

Fortunately, in the former article, DeBaise writes, "Networking is a skill that can be learned." The most important thing you must learn, she claims, is how to get "yourself in the right spot— and that means interacting with people who can potentially help your business." She then offers four other tips:

"Forget the artificial sales pitch. Keep the conversation natural. Share information about you and your company, but not in a way that's canned. Asking other people questions about themselves, too, creates opportunities to share what you're doing without the conversation seeming like it's all about me-me-me.

"Communicate your passion. Not only can you win people over with your enthusiasm for your product or service, but an upbeat manner is often contagious. Getting other people to share their passion, too, helps create a memorable two-way conversation.

"Don't commandeer the conversation. The most successful networkers are charismatic people who make the person they're speaking to feel special. Look other people in the eye, really listen to what they have to say and guide them to topics they want to talk about.

"Keep in touch. You'll likely end up exchanging business cards— but that's where this new relationship starts, not ends. Make sure to call or send follow-up e-mails or notes with a reminder about what you can do for them."

Although DeBaise recommends forgetting the sales pitch, having a rehearsed elevator speech is always a good idea. Having your thoughts clear in your head makes it easier to include them in casual conversation. If you don't have a prepared pitch, you can easily end up missing a golden opportunity. I really like DeBaise's recommendation about making the other person feel important rather than trying to focus the conversation on your business. If people like you, they will be willing to talk with you again. Another individual proffering networking advice is Dennis Grubbs ["Entering And Exiting Networking Conversations," Jobfully, 4 February 2011]. About entering and exiting a conversation, he writes:

"For many people (including myself), networking at social and professional events can seem like a very intimidating process. Two of the trickiest parts: How do enter into a networking conversation, and equally important, how do you properly end one? Starting a conversation can be the most intimidating part of networking. It sets the tone for everything else. How do you determine when a good opportunity has come up to start a conversation?

  • "Keep an eye out for people who are alone. Not only are they the easiest to start a conversation with, but you might also be helping someone who feels uneasy about the networking situation
  • "When joining a group conversation, look for people who are positioned to allow people to join. Avoid a closed circle of people. A U-shape invites others to join.

"After you identify the person or group you wish to speak with, you need to have a good intro ready:

  • "Keep it light. Stay away from controversial topics such as religion, politics, etc
  • "If you are approaching an individual, start with hello and volunteer your name and a handshake. Ask what brings them to the event, or something about them. Get them talking about their background.
  • "Once you make a connection, resist the urge to launch into your pitch. Ask about what they do and their background, listen and respond to what you’re hearing. For more, read 'Using Your Elevator Pitch Effectively'.
  • "Approaching a group you may lead with 'May I join you?' or 'I hope I'm not interrupting, I'm ...'
  • "Follow the lead of the group. Don’t take over their conversation but listen first to what they are discussing then join in.
  • "Easy questions for a group include 'How do you all know each other?' and 'What brings you here tonight?'"

Those are all excellent suggestions and fit neatly with those offered by DeBaise. Networking events, however, are about meeting as many potential contacts as possible. In order to meet a number of people, you can't be engaged for too long with any particular individual or group. Disengaging from a conversation can be awkward, even embarrassing. That's why I was impressed that Grubbs offered some advice on how to disengage while leaving "a good last impression as you step away." He advises:

  • "One way to exit is to introduce the person to someone you know, or to ask them to introduce you to someone you would like to meet. You may say 'Oh, there's my friend Ralph. Shall I introduce you?'
  • "Be mindful of your body language (ie tapping your foot or glancing around) so you don't appear rude
  • "Even if you are ready to move on, stay engaged with the person until you can make a graceful exit
  • "If you are having trouble breaking away, you can also suggest you wander towards the refreshments or other attractions in the room
  • "Before you leave, exchange contact information and establish follow-up
  • "Thank the person for talking with you
  • "When exiting a group conversation, you may say 'Nice to meet you all, will you please excuse me?'
  • "If you see someone else you know, consider inviting that person into the group rather than leaving the group to join him or her. Facilitating new connections makes you a helpful networker."

Just like it is important to practice an elevator speech, Grubbs recommends practicing "your intro, questions, and exit strategies with friends and family. Like many other things, it gets easier with practice." DeBaise's colleague, Kelly Eggers, offers seven tips about things you shouldn't do when networking ["Seven Networking No-Nos," Wall Street Journal, 23 February 2011] She writes, "It might seem like a lot of pressure, but remembering the things you shouldn't do may help make networking a bit easier." Here is her list of "seven of networking's biggest no-no's":

"1. Don't arrive late. To make things easier on yourself, time your arrival so you can maximize the interactions you're most interested in having. 'Especially for people who typically shy away from networking, the inclination is to arrive on the later side,' says [Devora Zack, president of Only Connect Consulting]. 'The opposite is a much better strategy. Being the first person there, it's calmer, laid back, and people haven't yet settled into groups. You won't feel like there's no one to talk to.'"

That's pretty good advice. Remember how difficult Grubbs indicated it could be trying to enter a group already engaged in discussion. Eggers continues:

"2. Don't just stand there. This is not the time to wait around for people to approach you. You need to work the room—even if you're on the shy side. There are ways to step outside your comfort zone and avoid awkwardness. Start off by asking questions, Ms. Zack suggests. And don't worry about impressing the person you're speaking with—just act naturally. 'Many people think they're bad at networking,' she says. The key is to work with, rather than fight against, your natural communication style. That way, 'what were liabilities become your greatest strengths,' she says."

For some people networking can be excruciating; but, remember that other people are there for the same reason. They want to meet you. Your story is probably just as compelling as others in the room and nobody knows your story better than you do. Although you attend networking events to meet people, Eggers says you don't need to meet everybody.

"3. Don't feel like you need to talk to everyone. As a budding business owner or executive, you might enter a networking event with a 'more the merrier' mentality when it comes to making new connections. However, it might be advantageous to take a 'less is more' stance instead. 'It's better to meet fewer people and create a deeper, lasting connection than simply talking to everyone in the room,' Ms. Zack says. Instead of going to a networking event and grabbing 40 business cards in two hours, speak with fewer people for a longer period of time. Give each person you talk to at least five minutes to get to know you—and you them—before you move on, she advises. This way, you'll leave networking events energized by new, true connections rather than tuckered out from meeting too many people."

My only caution here is that you don't attend an event to make friends. You're looking for contacts who can help your business. If you meet someone who clearly is not a good fit, move on. Time is precious at such events. Eggers continues:

"4. Don't come unprepared. Once a new contact tells you what they're specifically looking for in terms of products or services, you need to be ready to tell them how your specific experience lines up with their needs. Your goal isn't to hard-sell them right then and there—instead, it should be to get them interested in you and what you have to offer. To do that, you need to be prepared with an understanding of what everyone from an investor to a potential client will need, and be armed with the most relevant, useful information to show that you have a solution that works for them. What's 'useful,' you ask? Results. 'Don't stand there and tell them what you do, tell them what results you get,' says business coach Craig Jennings in New York. 'Have examples of a situation, a problem and a solution that you can say in two breaths.' Also, keep in mind that what an investor might find useful is likely different than what a customer wants to hear—so having a mental catalog of a wealth of your previous experiences will help you fill all kinds of niches."

That advice harks back to something I wrote yesterday: "What do you hope to accomplish? Are you looking for investors or customers or even employees? Obviously, the kind of networking you do and the type of events you attend differ depending on your objectives." Whatever your objectives, I agree that being prepared for the event is crucial.

"5. Don't forget the big picture. The bottom line is that, once you leave a networking event, you want the contacts and connections you've made to follow up with you and your services in the future. 'You should know your production and delivery capabilities, and be able to set a realistic expectation for potential customers,' says Frank Dadah, general manager of financial contracts with Winter Wyman, a Boston staffing firm. You're trying to maintain the image of your company, and if you're not prepared to answer detailed questions that cover the ins and outs of what you have to offer, or if you can't offer it to them in a timely manner, they'll move on—fast—to someone who can."

Again, preparation is the key to making the most of networking events. Eggers continues:

"6. Don't try to multi-task. Within the first few minutes of meeting someone new, you probably don't whip out a notebook to write down what they're saying—and that should be a rule for networking events, as well. Instead of being distracted by a pen and paper, focus intently on the conversation you're having. After you've grabbed a business card and stepped away, jot down a few things that will help you jog your memory when you follow up with them later."

The key to most successful relationships is the ability to listen and make the other person feel like they have your full attention. Time and again I have read articles about successful people in which acquaintances, speaking about the successful person, have stated that when they were with them they felt like they were important and had that person's full attention. Eggers' final suggestion is about following up.

"7. Don't forget to follow up. 'If you're not following up, you're not networking,' says Ms. Zack. 'You should stay in touch, without thinking about what you'll get out of the relationship.' Within 48 hours of your first meeting, you should email a note that pinpoints the most important parts of your earlier conversation, so your contact remembers who you are specifically. A timely turnaround will show that you're both interested and available to continue the conversation. 'Send them a link to a project you discussed, or ask them how the game they were going to that night ended up,' advises Ms. Zack. 'Give them something that is useful to them.'"

If, as DeBaise claims, "networking is one of the most valuable forms of marketing," then networking techniques are some of the most valuable skills that you must master. The recommendations and suggestions offered by DeBaise, Grubbs, and Eggers are all well thought out and explained. You would do well to spend some time refining them before you head out to your next networking event.

July 21, 2011

Entrepreneurism: The Importance of Networking, Part 1

I promised, in an earlier post, that I would write a blog about networking. I believe that networking is important, but only if it serves a purpose. What do you hope to accomplish? Are you looking for investors or customers or even employees? Obviously, the kind of networking you do and the type of events you attend differ depending on your objectives. One thing that you can do to improve networking is locate your business in the right area. Paul Tyrrell writes:

"The concept of the business cluster has become an increasingly important part of regional development and corporate strategies since 1990, when Michael Porter of Harvard Business School published The Competitive Advantage of Nations. In the book and subsequent research, Prof Porter found that as more companies of the same type cluster together in the same place, so they derive more benefits from their 'colocation'. Companies have long recognised that siting themselves near to rivals could make life easier for customers, cut supply chain costs, and – most important – make it easier to recruit specialists." ["The added value of a group," Financial Times, 6 July 2010]

Of course, even if you establish your business in the ideal cluster area, you still must implement a networking strategy. Porter indicates that when he first tried to organize cluster groups, participating CEOs were skeptical about the benefits of networking. Only after they started talking did the benefits become obvious. Tyrrell included the following graphic with his article to show how clusters, companies, governments, and people interrelate.

Clusters

Richard Florida, a professor of urban studies at the Rotman School of Management in Toronto, told Tyrrell, "Governments can help clusters become the 'go to' destinations for particular industries, but it takes time. And it takes sustained investment in great universities and in people and, of course, in the physical fabric of the place." For individuals and their companies, establishing a great networking strategy takes the same kind of sustained investment.

Mike Southon believes that another way to make good connections is to establish your bona fides in your selected industry. ["Make the right connections," Financial Times, 31 January 2011]. He continues:

"Daniel Priestley, a successful entrepreneur who has built several multimillion-pound businesses in events marketing and public relations ... has identified five ways you can help to establish your reputation in your chosen industry. First – and most importantly – identify your own micro-niche. The more specialised you are, the easier it is to establish yourself quickly in that area. ... Second, having identified your niche, you should aim to get published, in some form. This might eventually be a book but, in the early stages, you should demonstrate your thought leadership in specialist trade press, using weblogs and articles. Third, Priestley advocates developing information products, including CDs, DVDs or internet downloads such as eBooks. These can allow you to share your ideas with more people and even earn money from your expertise. Fourth, you should raise your profile online, so that you start to appear nearer the top of the Google search rankings. Learning how to use key online social networking platforms such as Twitter, LinkedIn, Ecademy and Facebook will enable you to grow your personal brand online and can help to connect you to other thought leaders in your chosen field. Fifth and finally, you need to form the right partnerships, which can provide significant leverage if managed correctly."

In some ways, Priestley's fifth recommendation is a Catch-22. You try to establish a reputation so that your networking becomes easier. If, however, you need to "form the right partnerships" to do this you're right back at the start trying to get connected with the right people. Obviously, networking is not as easy as it might first appear. Let's look at networking for each purpose (i.e., getting connected to investors, finding customers, and finding employees) in turn.

Networking to Find Investors

David Gill, managing director of St John's Innovation Center in the UK, asserts that if you are looking for investors, networking is important. But, he writes, "I do not mean generic networking." He insists that "just turning up to an evening talk" is a waste of time. He says that you need to get "to those events where you are likely to meet investors and to be able to get a sense of what they are looking for." ["Tips on angel funding," by David Gill and Alex Hoye, Financial Times, 22 May 2011] Getting into such meetings may prove problematic, so Gill recommends using investment readiness programs. He writes, "If the guys running these are marketing their programmes properly, they will provide the opportunity to meet real investors."

Networking to Find Customers

Jonathan Moules writes, "The digital age has spawned an array of technologies to help entrepreneurs reach their customers, from Google adwords to Facebook pages. However, for many, there is nothing to beat the old-school techniques of knocking on doors and getting recommendations for a job well done." ["Nothing fancy does the job of reaching customers," Financial Times, 14 February 2011]. Moules continues:

"Scott and Lisa Sumner have built their corporate cleaning business, Olivers Mill, into a £3m operation with more than 200 customers, entirely through word-of-mouth recommendations. The staff headcount has risen to 330 people but, in 15 years of trading, the Kent-based company has never once hired a sales executive. ... A business built on referrals is stronger because it has deeper relationships with its customer base, Scott says."

Word of mouth is fine for some companies; however, Mike Southon insists that for most companies a sales director does become an imperative ["The hardest person to hire," Financial Times, 6 December 2010] He writes:

"Once a business has become established, with offices and other fixed overheads, hiring the right people for growth becomes an important priority. By far the most difficult person to recruit is always the sales director. Most start-ups are established by a couple of complementary individuals who are able to sell their initial products and services to family, friends and former colleagues. ... To expand the business, the founders acknowledge they must find a highly experienced sales director. This is the first person in the company specifically responsible for finding new accounts, growing existing ones, hiring a focused sales force and ensuring that sales grow steadily over the next five years."

Despite the fact that he recommends that start-up companies eventually hire a professional sales force, he nevertheless concludes that "you should encourage everyone in the company to continue selling as you did before, in a low-key, personable way." There are innumerable companies willing to sell you lists of cold-call contacts (such as email addresses and phone numbers). But their lists will never match one well-connected director of sales. Finding someone with established industry connections is a real bonus.

Conferences, of course, are another way to network. Conference organizers always assert that their conference is a great place to make the good connections. Attending the right conference can indeed pay dividends and I've made some very valuable contacts at such functions. My only caution is to not go overboard -- be selective. Mike Southon cautions that setting up exhibits at conferences rarely achieves the hoped for return ["How to make an exhibition out of yourself," Financial Times, 7 March 2011] He writes:

"It is not cheap to exhibit at a trade fair – the stand space is expensive and then there is the cost of building it, developing marketing materials, plus the staff time involved in just being there. ... If you do decide to exhibit, make the sales messages on your stand as obvious as possible. An interesting exercise is to walk down an aisle at a trade show, trying to guess what an exhibitor does just by looking at its stand. ... People who attend trade shows are looking for someone to solve their problems or meet their needs. If you clearly state those problems and needs, and then explain how you can address them, you stand a good chance of attracting a potential customer."

Although I agree with advice about how an exhibit stand should appear to attract potential customers, I agree even more with his next bit of advice. He writes:

"In my experience, very little business is gained from people casually wandering on to your stand – the key to success at a trade show is in the pre-event preparation. Experienced trade show exhibitors train their staff in good stand technique and do most of their work in advance of the event, contacting potential customers to make specific appointments. Any spare time at the show is used in scanning the other stands, eyeing up the competition and looking for new leads. If you do spot a potential customer on another stand, it is poor etiquette to try to engage them in a sales conversation there and then. You should just ask for the name of the key decision maker for contact after the event, and take as much of their sales literature as possible for your pre-meeting research."

Have you noticed a common thread that runs through most of the above suggestions? It seems to me that almost everyone recognizes that nothing replaces hard work and personal contact. I'll discuss that more fully in the next post.

Networking to Find Employees

A blogger at JEM Consulting wrote, "Many smaller businesses rely on networking or referrals to find employees rather than traditional or online want ads. Well it comes as no surprise to me that 59% look to their network to find prospective employees; those networks being family, friends and current employees. Additionally they are looking to social networks, especially business based networks." ["Small Business Finding Employees Networking and Social Media," 7 June 2011] If you want to go beyond family, friends, and current employees and use social networks, Josh O., founder and CEO of Snthy, an online recruitment concierge service that claims to take "the grunt work out of the hiring process," offers ten sites, including his own, that you may want to consider ["10 Sites To Find Employees For Your Startup," EpicLaunch, 20 May 2011]. He writes, "Through trial and error entrepreneurs find and perfect their business model, only to be discouraged when they cannot find a team to execute their ideas. Finding the perfect team leads to finding the perfect balance. The balance all of us entrepreneurs seek is often just clicks away … buried in a world of spammers and unreliable, incompetent workers." Click on the link above to see the "list of 10 sites to help you on your journey to find the perfect balance."

Putting yourself in the right place at the right time is a good way to begin networking; but it is only the start. In tomorrow's post, I'll discuss some of the recommendations that others have offered about what you should do once you find yourself in a networking situation.

July 20, 2011

Consumers and Social Media

In a post entitled Collaboration and Social Media, I indicated that I would write a future post about how consumers are beginning to warm to the idea of using social media outlets as channels to make purchases. There are several ways that social media outlets can be used to generate sales. The first, of course, is directly. Social media sites like Facebook want to go head-to-head with Amazon.com as a place consumers go to buy products. Another way that social media sites can be used is to direct users to stores where they can find the merchandise they are seeking.

The Economist claims, "E-commerce is becoming more social and more connected to the offline world." ["Selling becomes sociable," 9 September 2010] The term "offline world" refers to traditional brick-and-mortar stores. The article begins, however, with a discussion about a new company called Swipely. According to the article, Swipely allows users to "publish their purchases. Whenever they swipe their credit or debit card (hence the service's name), the transaction is listed on the site—to be discussed by other users. 'Turn purchases into conversations' is the firm's mantra." As the article notes, such digital exhibitionism will likely make "those who cherish privacy ... recoil in horror." The article continues:

"Swipely is among the latest entrants in the growing field of social commerce. Firms in this market combine e-commerce with social networks and other online group activities. They aim to transform shopping both online and off. ... The first generation of e-commerce sites, which hit the web in the late 1990s, were essentially digitised mail-order catalogues. Websites like Epinions collected user reviews and recommendations, but they did not sell anything—and many collapsed during the dotcom crash. Only Amazon brought together selling and social feedback, to great effect. By means of collective filtering, it made suggestions based on other buyers' purchases."

The article explains that "the second generation of e-commerce firms is quite different." Interestingly, few of the new e-commerce firms have "emerged from Silicon Valley." The article continues:

"They tend to have offline roots, and sometimes seek to drive customers to actual shops. Many make their money from flash sales—brief offers of steep discounts on products—that are advertised to registered members. The pioneer of flash sales, Vente Privée, grew out of the French apparel industry (the name means 'private sale'). Even today, its centre of gravity is offline, says Jacques-Antoine Granjon, Vente Privée's boss, who founded the firm in 2001 along with seven partners. Hundreds of designers, photographers and hairstylists organise its online sales events. ... Vente Privée's success has inspired others. The best known is Gilt Groupe, which emulates the sample sales of luxury retailers in New York, where it is based. ... Gilt Groupe is straying into the territory of another clutch of city-based e-commerce sites, which facilitate collective buying. Every day these sites offer the service of a local business—a restaurant meal, a spa-treatment, the rental of an expensive car—at a discount of up to 90% (they generally keep half of the sale price). But a deal is struck only if a minimum number of members pounce. Buyers thus have an interest in spreading the word, which they do mostly on social networks."

The territory that Gilt Groupe is straying into is currently held by companies like Groupon and Living Social; organizations that The Economist places in the second generation category of e-commerce companies. The article goes on to discuss a possible "third generation of social-shopping sites." It continues:

"The latest batch of firms try to build their business on top of the 'social graph': the network of friends spun on social networks. They make use of virtual currencies and the growing popularity of smart-phones, which can track consumers' location. ModCloth, which sells clothing from independent designers, has an active forum on Facebook and lets customers vote on which products the site should stock. Lockerz, another upstart, pays members 'pointz' if they watch videos with advertisements, invite friends and do things with them. They can then use this currency to obtain discounts. Similarly, Shopkick rewards consumers for offline activities such as visiting stores and scanning products with their smart-phones. For the new generation of e-commerce firms, the offline world is as important as the online one."

The article concludes by openly wondering if second and third generation e-commerce companies will prove to be disruptive. It continues:

"It is hard to predict whether the second and third generations of e-commerce sites will continue their rapid growth. Consumers may tire of flash sales, as they did of online auctions. Even collective buying may have its limits. ... Whatever the fate of individual firms and sales models, e-commerce is bound to become more social, predicts Sonali de Rycker of Accel Partners, a venture-capital firm. Retailing has several persistent problems: the high cost of attracting visitors, the low probability that they become buyers and the difficulty of getting them to come back. Sociable e-commerce offers potential solutions to all of them. So expect your favourite site to add social features, whereas many of the pioneers will end up with arrows in their backs, as innovators often do."

To learn more about why The Economist would assert that "many of the pioneers will end up with arrows in their backs," read my post entitled First to Market vs. Late to the Game. According to a research paper entitled the 2011 Social Commerce Study, "shoppers are willing to interact with retailers through a variety of social networks." ["Poll: Shoppers Want to Buy via Facebook and Twitter," Consumer Goods Technology, 1 June 2011]. If true, authors of the article believe that "retailers have limitless opportunities to capitalize on the momentum." The study was "a joint research project by Shop.org, comScore and Social Shopping Labs." The article continues:

"Though many retailers use social media to build their brand, research indicates that companies may also be able to monetize these channels. According to the survey, more than half of Facebook users (56 percent) say they have clicked through to a retailer's Web site because of a Facebook post, while over two-thirds of Twitter users (67 percent) say a post has spurred them to click through to a Web site. Additionally, the appetite for buying directly through social networks appears strong: one-third of shoppers say they would be likely to make a purchase directly from Facebook (35 percent) or Twitter (32 percent)."

The more popular that devices like smartphones, tablet computers, and e-readers become, the more likely it is that shoppers are going to use them for shopping. Fiona Swerdlow, Head of Research at Shop.org, told the CGT staff, "Instead of waiting to get back on their desktop computer to watch videos or interact online, Americans are easily accessing social networks when they have even a few moments of down time, whether they're scanning Facebook news feeds while picking up their kids from school or tweeting about their shopping experience while browsing the mall." She continued, "The popularity of mobile devices will only boost the power of social commerce, which presents an incredible opportunity for retailers."

It should be noted that not all analysts believe that social media represents "an incredible opportunity for retailers." Todd Wasserman states, "A new study says social media has almost no influence on online purchasing behavior." ["Social Media Has Little Impact on Online Retail Purchases," Mashable, 27 April 2011] It's important to note that Wasserman states the study only refers to "online purchasing behavior." Some of the second and third generation sites mentioned above are aimed at influencing purchases from physical stores rather than online purchases. Wasserman continues:

"The report, a collaboration between Forrester Research and GSI Commerce, analyzed data captured from online retailers between November 12 and December 20, 2010. The research shows that social media rarely leads directly to purchases online — data indicates that less than 2% of orders were the result of shoppers coming from a social network. The report found email and search advertising were much more effective vehicles for turning browsers into buyers. 'The best analogy is in the South, a lot of people go to church on Sunday,' says Fiona Dias, executive vice president of strategy and marketing for GSI Commerce. 'If you go with the theory that you should market where the people are, then you should be running off to market during church services. Facebook has the same analogy. Buying things from retailers is maybe 10th on the list of things they want to do on Facebook.' Dias says social media outreach is somewhat effective for distributing news about short-term deals. In that case, 5% to 7% of purchases are influenced by social media activity."

Retailers and manufacturers should note that social media sites do "seem to work is more traditional online marketing, including email and search advertising." Wasserman continues:

"Most consumers in the study were exposed to some form of marketing by the retailers before they made their purchase. Seventy-seven percent of transactions in hard goods categories (like lawnmowers) and 82% in soft goods categories (i.e. clothing) occurred after the consumers had engaged in some interactive marketing tactic before their purchase. Forty percent of hard goods transactions and 60% of soft goods transactions came to retail websites directly from email and search."

That data should be very encouraging for second and third generation e-commerce sites. For social media sites hoping to gain substantial income through advertising, the results are mixed. Wasserman concludes:

"That's not to say that online advertising plays no role in purchasing decisions. The report found that consumers are exposed to such ads early in the purchase funnel — display ads are the first touchpoint for 13% of soft goods buyers, for instance. Dias says she isn't surprised by the survey’s results because she’s been telling retail clients for some time that social media outreach is a waste of time and money. Says Dias: 'It's been a mystery to me why the media is excited about social media. From a retail and commerce perspective, it seems to have no effect.'"

Obviously, the whole tale has yet to be told about the relationship between social commerce and consumers. Many merchants continue to be social media skeptics. "According to a recent poll, nearly half of small-business owners do not use social media, feeling that it's not necessary to their business." ["To Heck With Twitter, Business Owners Say," by Emily Maltby, Wall Street Journal, 14 July 2011] Maltby continues:

"Only 4% said that they couldn't do without social media as a marketing tool, compared to 50% who said the same about word-of-mouth recommendations. The survey comes from small-business insurer Hiscox Insurance Company Inc., which commissioned market-research firm Opinium Research LLP to conduct online interviews in late May. The results come from 304 U.S. business owners and managers – more than 200 of which are founders of their companies. All those surveyed have fewer than 250 employees. Of those engaging in social media for business purposes, 28% have a company Facebook page, 18% have a company LinkedIn page or group, and 8% have a company blog. Only 6% have a YouTube or video-streaming channel and 2% have a company Twitter feed. ... The most common reasons for using social media, according to the poll, were to increase brand awareness and generate sales. But 10% also said they used social media for research purposes. The Hiscox study supports other research showing that the majority of owners haven’t found social media to be a vital part of their businesses."

Based on the evidence so far, it seems to me that it is too harsh of a judgment to conclude that social media has "no effect" on retail and commerce. On the other hand, it also seems a bit optimistic to trumpet the "limitless possibilities" of social media retailing in the years ahead.

July 19, 2011

Customization and the Supply Chain

Trevor Miles asserts that supply chain portfolio complexity is increasing "due to mass customization and shortening product life cycles." ["Visibility, the antidote to supply chain opacity," The 21st Century Supply Chain, 2 May 2011]. Analysts at McKinsey and Company claim, "Executives expect that the most powerful effects on their companies will be increased innovation, greater consumer awareness and knowledge, and increased product and service customization." ["Five forces reshaping the global economy: McKinsey Global Survey results," McKinsey Quarterly, May 2010]. Researchers from Supply Chain Digest's research organization, Chief Supply Chain Officer (CSCO) Insights, insist that "'build to stock' will ultimately give way to 'build or customize to demand'" in most industry sectors ["Building Sense and Respond Supply Chain Networks," by Editorial Staff, Supply Chain Digest, 17 June 2010]. J. P. Gownder, vice president and research director at Forrester Research, writes:

"Although mass customized products aren't yet widespread –- aside from in long-standing categories like eyeglasses — interest in customizable products is mounting. More than 35% of U.S. online consumers are already interested in customizing product features or in purchasing build-to-order products that use their specifications, according to a recent study conducted by my company. The opportunities are much greater than this initial data suggests. Psychologists have determined that an 'I Designed It Myself Effect' exists in mass customization, where buyers feel a sense of accomplishment from their co-design efforts. Buyers gain additional value from the certainty that features will be exactly what they want. And they can express themselves with public goods (such as clothing, cars, jewelry, or even PCs) that reflect their unique design. Ultimately, these psychological benefits translate into a higher willingness to pay into loyal, repeat-purchasing customers." ["Why Large-Scale Product Customization Is Finally Viable for Business," Mashable, 13 April 2011]

For consumers, those predictions may sound like a dream. For many supply chain professionals, they sound like a nightmare. Before continuing with Gownder's discussion about mass customization, I want to discuss an extreme case of product customization as it relates to the fashion industry. Stephanie Rosenbloom reports, "Do-it-yourself Web sites are making it easy for fashion buffs to design and order custom outfits: all you need is an Internet connection and a credit card." ["The Designer: You. The Maker: Who?" New York Times, 11 May 2011] Rosenbloom says that these sites are perfect for "would-be couturiers who long to design their own wardrobes but can't sketch or sew are in luck." Although we are all familiar with the customized business model used by PC manufacturers, their degree of customization pales in comparison to having to make clothing that perfectly fits a customer. Rosenbloom reports that some sites don't offer that much customization. For example, she visited a site that offers customized bras. The site allowed her to order a bra with different designs and colors for each cup, but didn't allow her to customize the bra with different lace, ribbon, or strap color." She called the site, "Imperfect." As imperfect as the site is, Rosenbloom concludes:

"The site provides an important service. It sells different cup sizes for the same bra, a welcome option for women whose breasts are not symmetrical (the cups snap together in the front of the bra). Customers can select from sizes 34B to 40D as well as 'just about' sizes. And at $7.70 a bra (regularly $10) — less than the price of a small cheese pizza at my neighborhood Domino’s — the site may be perfect for those who want their money in their pocket, not their bra."

Unfortunately for Rosenbloom, when her customized "polka dot" bra arrived it looked like something a clown or someone advertising for Baskin-Robbins would wear. Additionally, "it was too small. Turns out the site's fine print says the bras are designed for a 'junior frame.'" In the end, she writes, she ended up with "a costly sling shot." Undeterred, Rosenbloom soldiered on to buy some customized skinny jeans. She writes:

"After perusing Web sites, [I settled on a site that] offered that jean style and appeared to have more features, like patches and zippers. ... Hurdle No. 1: the site's design. It's cluttered and lacks 360-degree images and models, which are key to the success of sites like Zappos and Net-a-Porter. Navigating [the site] was at times more exasperating than trying on jeans. This is a problem with many design-your-own clothing sites, but it's glaring when customers are evaluating denim style, weight and wash. Discerning the difference between 'posh' and 'body hugger' denims was like trying to tell the Olsen twins apart. ... Hurdle No. 2: taking measurements. This, of course, is critical. But the site needs clearer instructions. A colleague and I had to go over them several times, and as veteran online shoppers, we're not unfamiliar with measuring tape. We spent hours scrutinizing the site and measuring my waist, thighs, hips, knees, inner and outer leg, and more. I've had less invasive doctor's appointments."

Rosenbloom points out that measurements are important because "there are no returns unless the measurements of the jeans you receive differ from those you submitted." After adding the desired appointments to her skinny jeans, she "clicked a button to place the order" and "was promptly informed that my credit card was charged $3,462. A hot wave of panic surged through me along with words like 'idiot' and 'you’re fired.' Moments later I realized it was 3,462 Indian rupees, about $77 (including shipping)." Clearly, Rosenbloom's skinny jeans were going to be handsewn in India. Having placed the order, Rosenbloom still had another hurdle to face. She continues:

"Hurdle No. 3: more measurements! Five days later, I received an e-mail from Make Your Own Jeans asking me to reconfirm the outer leg length and, if possible, to provide the inseam measurement, too. I wanted to scream. My more rational self, however, was impressed that the company checked to make sure I wanted cropped jeans. I sent a note back and received a near instantaneous reply. Points for customer service."

Once again, however, when "the jeans arrived from Mumbai.," Rosenbloom was disappointed. She explains:

"They looked quite nice from the waist to the thighs. But below the knees? Picture a denim Ace bandage. I ordered skinny jeans. I received jeggings. The denim is thin, so the pocket lining showed through. Colleagues added that they were turned off by the MetroCard-size label sewn onto the rear. The company offers back pocket designs meant to resemble that of 'name' brands, but that label is a dead giveaway that you are, in fact, not wearing designer jeans."

You have to give Rosenbloom credit, however. Having gone 0 for 2, she nevertheless moved down her torso to her feet and decided to order some shoes. She again perused a number of sites and settled on one "which has made heels for Ginnifer Goodwin and Emily Deschanel." She continues:

"This site, too, was frustrating to use, though a recent redesign has made it much cleaner. I created a pair of black leather heels with silver studs. Then I waited. [The company's] production time is six to eight weeks, an eternity in fashion. When I ordered the pumps it was winter. It's 70 degrees as I write this. I want studded closed-toe shoes like I want earmuffs."

Rosenbloom points out a challenge with extreme customization that consumers are probably not going to accept easily -- delayed gratification. Having been disappointed twice previously, how did Rosenbloom do this time? I'll let her tell you:

"More than five weeks after placing my shoe order, I received an e-mail saying it had shipped, along with a photograph of the pumps, as if they were a wart hog I had adopted from the World Wildlife Fund. A box arrived the next day from Hong Kong. I eagerly sliced it open. Yikes. A wart hog would have been cuter. Turns out, I created a punk-meets-granny-style pump with a round toe. ... My error, I'll admit. That said, the leather wasn't supple, and the shoes were snug despite a request for a roomy toe box. More significantly, they cost $277. That's about halfway to a pair of Christian Louboutins. Happily, the site offers refunds for most unworn shoes within 30 days if the fit isn’t right, or if the shoes didn’t turn out as you expected and the company can't fix them."

So what does Rosenbloom conclude from her 0 for 3 customization experience? She writes:

"Overall, design-your-own clothing sites are best for specific needs — like, say, you want a size 11 sequined fuchsia sandal because you’re a tall bridesmaid, or RuPaul. But if you're looking for quality and convenience, you're better off shopping at a retailer and then taking your purchases to a cobbler or tailor for adjustments. It may seem like a blast to make your own wardrobe on the Web, but it can also be a lot of work — and money. The results are not necessarily perfect. And if they aren't, there’s no one to blame but yourself. In other words, you reap what you don't sew."

Large manufacturers really aren't equipped for the level of customization described by Rosenbloom. So it makes you wonder exactly to what level of customization the analysts I quoted at the beginning of this post are referring. My suspicion is that PC manufacturers have it about right. They produce standard "boxes" and insert interchangeable components to meet a customer's desires. Returning to J. P. Gownder's claims that mass customization is a viable business model, he writes:

"Mass customization — where customers can tailor a product's appearance, features or content to their own specifications -– has been the 'next big thing' for a long time. As far back as 1970, the futurist Alvin Toffler predicted its emergence. Customization expert Joseph Pine published his seminal book in 1992, and the 2000 book Markets of One suggested that customization would change the fundamental structure of the American economy. Yet for years, mass customization largely failed to take off. Worse yet, big brands have tried and failed with customized offerings. Levi Strauss offered customized jeans from 1993 to 2003 but failed to offer the kinds of choices to consumers -– like color -– that would have made the offering successful. Dell, once the most prominent practitioner of mass customization, flamed out spectacularly, saying that the model had become too complex and costly to continue. But today, mass customization is enjoying a renaissance among big brands such as Kraft, Hallmark, M&Ms, Wrigley and the longest-running success, Nike. And a number of pure-play international startups selling products such as chocolate, jeans, mosaic tile, jewelry and cereal, are showing the value of mass customization to consumers and product strategists alike. We're entering a new era in which mass customization will lead a number of consumer product categories, creating value for buyers and sellers alike."

Gownder believes that there are "three trends that will promote mass customized product offerings." Those trends are:

  • "Today's supply chain technologies enable more efficient production. Supply chain software promotes an efficient flow between customers' co-design efforts and fulfillment on the production side, as Archetype Solutions demonstrates.

  • "Today's customer-facing technologies are cheaper and easier to deploy than ever. The price (and time requirement) for developing customer-facing configurators has dropped significantly in the past few years. It's a fraction of the cost even compared to a few years ago (think $50,000, down from $1 million). And new uses –- like embedding configurators within Facebook — make configurators more accessible (and more social).

  • "Tomorrow's customer-facing technologies will be revolutionary. Technologies allowing customers to design their own products will become richer and more plentiful. For example, Microsoft's Xbox Kinect shows the pathway toward the ultra-configurator: A device that will measure the contours of your body (or home) and allow gestural configuration. A tug on your augmented reality sleeve will lengthen it; pulling on a lapel will widen it. This super-configurator will be used for immersive design experiences across a wide variety of products."

You can imagine how much easier Rosenbloom's experience might have been if a Kinect-like gadget she had in her home could have precisely measured body and forwarded that data to the manufacturers. It wouldn't have changed the other challenges she faced, but it would have made the fitting process much easier. Gownder doesn't believe that manufacturers, even in an age of customization, will be able to sit back and wait to see what the customer wants. He argues that they must be proactive. He concludes:

"Practitioners of mass customization must learn who their buyers are as individuals, forecast the feature combinations that will resonate with them and — eventually — predict what new features these customers will want."

Nikhil Balkudi, an Infosys consultant, writes, "Every marketer dreams of a manufacturing facility that is without any constraint. If marketing people had their way, they will expect all the products available 'On Demand' whenever customer places order." ["What Products Should Be Campaign Manufactured?" Supply Chain Management, 3 June 2011] Although many analysts believe that demand driven supply chains will define the future, product customization increases the challenges that manufacturers must face to make that goal a reality. As Balkudi writes, "Every manufacturing facility in the world, howsoever sophisticated it may be, has some constraints. Hence not all products can be made manufactured 'On Demand'." It will be interesting to see where the limits of profitable customization really are. Because customization remains a relatively unexplored frontier, its boundaries have yet to be tested.

July 18, 2011

Collaboration and Social Media

After publishing my last post on social media and the supply chain [More Thoughts on Social Media's Impact on Supply Chains], I received a nice note from Ashly Li, whom I quoted in that post. She directed me to another short post she had written ["The Goal of Social Media in Supply Chain Management," SpendZen, 6 June 2011]. In that post, she refers back to her earlier post (the one I cited in the above-mentioned post) and writes:

"I was trying to look forward on the possibilities rather than [the] present on the problems. Also, I was more concerned about the methodologies of social media to be utilized in the whole supply chain rather than the existing social media tools to be used for supply chain predictions on end user demand. Using social media in [the] supply chain will sure help provide useful and real-time information, but to me customer demand analysis is more in the scope of market research department than in supply chain department. Also, although I have been learning greatly by reading insightful articles on similar topic and I believe we can always gain useful insights in a tool by weighing its cons and pros, being analytical and critical is not the goal. The goal is to move forward and solve the problems. On [a] trip to NYC ..., I happened to see a poster 'Life isn't about finding yourself; Life is about creating yourself', which is very inspirational to me. It can be applied to every aspect in our life and work. In this case, using social media in supply chain is more about how you want it to be."

In my posts about innovation and creativity, I have commented that new technologies are often used in ways that the creator of the technology never imagined. Put new tools in the hands of smart people and they will figure out how they can best be used -- whether that is the intended use or not. I think that is what Li is recommending. We have social media -- now what can we do with it? We don't have to be confined to the obvious. Many people seem to believe that social media will primarily benefit retailers; but analysts like Li see creative uses for social media throughout the supply chain. Gabriel Gheorghiu is another analyst who sees social media benefiting others in the supply chain besides retailers. "Social media and collaboration," he writes, "are ... not industry-specific, and they can bring advantages to any company ... concerned with the satisfaction of its customers." ["Social Media and Collaboration: Not for “Serious” Manufacturers? Think Again." Technology Evaluation Centers Blog, 14 April 2011] He continues:

"At the Gartner Portals, Content & Collaboration Summit I attended recently, several analysts shared some personal experiences they had with companies seeking to understand how social media and collaboration can impact their business activities. Of interest, they mentioned that manufacturing companies tended to take a cautionary approach and think as follows:

• Social media is a form of entertainment, and our business is not to entertain customers.
• We don't need social media, and our customers would not react well to such an initiative.

"These statements are based on assumptions that are not necessarily true—e.g., consumers of fast-moving consumer goods (FMCGs) (toiletries, soaps, cosmetics, shaving products, detergents, and non-durables, such as batteries, paper products, and plastic goods, etc.) are interested not only in the quality of the product, but also in the buying experience of that product. They are also based on non-verified facts, such as the opinions of individuals—if you search the name of your company on Google, Facebook, or Twitter, you will probably find that people are already talking about your company."

In previous posts on this subject, I noted that manufacturers who are trying create buzz or get people to try their products are much more likely to find success with social media outlets like Facebook. By offering free samples, coupons, or other special offers, they can improve "the buying experience of that product" as Gheorghiu states. B2B companies found business-oriented social media outlets like LinkedIn better fits for them. Gheorghiu goes on to address how manufacturers can use social media since they are part of "an industry sector that is still very reluctant to adopt them." He continues:

"As manufacturing companies need to manage complex processes, they have to find ways to enable individual employees and entire departments to work together. But this is usually done through a mix of rigid business processes introduced by management and informal habits created by people to compensate for missing or weak workflows. Unfortunately, employees in manufacturing companies usually see collaboration as just another aspect of the job or a way to make one's life easier—and not as a strategy and culture that benefits everyone (including business partners and customers)."

As I have noted in several past posts, more and more analysts believe that collaboration throughout the supply chain will differentiate winners and losers in the decades ahead. Gheorghiu apparently also believes this, which is why he wants to demonstrate "why social media and collaboration are important to medium and large manufacturers." He lists two primary reasons. The first has to deal with customer relations. He writes:

"• Social media is not only a popular and widely used forum, but also a great source of information that can prove to be extremely valuable to manufacturing companies. From end-user communities to unstructured data that can be found on Twitter and Facebook, feedback can be gathered regarding the products and services companies provide. This feedback can be used for several purposes: improving the quality of the products, designing new products, enhancing the customer service experience, and staying current of changes in customers' purchasing behavior."

Supply chain analyst Lora Cecere, believes that social commerce has "the power to redefine the shopping experience allowing companies to anticipate, personalize and energize the shopping experience in new ways. Untapping the potential of this technology shift will make the vision of customer-centric value chains ... a new reality." ["The Rise of Social Commerce," Supply Chain Shaman, 15 October 2010] Cecere goes on to assert, "[Social commerce is] reshaping value chains. More than ever, retailers are now manufacturers and consumer products manufacturers can now sell directly to loyal shoppers. The power is shifting to the shopper. The digital consumer now has the power of the value chain in the palm of their hand, but more importantly, it allows a company to have a direct dialogue with a consumer in a more meaningful way." Gheorghiu's second reason that manufacturers need to embrace social media focuses on collaboration. He writes:

"• Collaboration can be the differentiator between a successful company and its lagging competitors. Extensive collaboration can empower a company to produce more innovative products, run the business with better processes, and make employees work more efficiently. A culture of ideas and information sharing, along with the right tools and processes in place, can enable employees to contribute to the enhancement of their activities, which can have a huge impact on the success of the organization. Collaboration may include partners, and even communities of users and customers (existing or potential)."

To learn more about the subject of collaboration, read my posts entitled Supply Chain Collaboration and Information Sharing and Collaboration. In the latter post, I wrote:

"Supply chain analyst Trevor Miles insists, 'Collaboration can bring tremendous value to outsourced supply chains, such as we see in electronics and apparel.' ['Visibility is a Start. Collaboration is the Goal.' The 21st Century Supply Chain, 28 March 2011]. He then asks a fundamental question: 'But what is collaboration?' He continues:

'All too often collaboration is viewed in the context of exchanging data. Visibility to data is important, but collaboration is ultimately about teams of people working together to achieve a shared objective (but perhaps not a common goal). The potential value of collaboration in the supply chain is enormous in terms of both reduced inventory and increased supply chain agility, not to mention the reduced cost of 'policing' supply chain relationships. Visibility is a start. Collaboration is the goal.'"

Gheorghiu concludes:

"Medium and large manufacturers should take advantage of both collaboration and social media tools to improve the overall business performance of the company. But, as any major initiative, this should be done cautiously. Do not jump onto the bandwagon without first understanding what this initiative would mean to your company, and stay away from experts who promise you fabulous results over the short term. Instead, start small—there is surely someone in your company who would like to get involved in a social media initiative. ... And if you fear that you're going to lose control over what's being said about your company, you should know that this has already happened, or it will happen soon—and there is nothing you can do about it! The idea is not to control people, but to give them the environment and the tools to work better as a team and contribute to the growth of your company."

Gheorghiu asserts that if you want "a very good example" of how a company can successfully use the combination of social media and collaboration you should study "the Procter & Gamble Connect + Develop innovation strategy." In a future post, I'll examine how consumers are beginning to warm to the idea of using social media outlets as channels for making purchases.