I would like to call attention to our readers who have either been laid-off from their positions as a result of this nasty economic cycle, or remain as survivors of constant rounds of  such cutbacks, to a recent article that was published in Newsweek Magazine. This article, Lay Off the Layoffs was written by Jeffrey Pfeffer, professor of organizational behavior at Stanford’s Graduate School of Business.  It is not an academic’s dry view of business trends, but rather a sobering and powerful set of arguments regarding the impacts and lack of benefits to business from frequent layoffs. This article really resonated with thoughts that have been percolating in my mind for months, and perhaps you might have the same response.

Pfeffer outlines a number of strong arguments that layoffs are mostly bad for companies, very harmful for the economy as a whole, and devastating for employees.  The article rightfully notes that over the last two decades, layoffs have become an increasingly common occurrence of corporate life, in good times as well as bad.  While layoffs may well be justified in a dying business or industry, too often of late, shedding people has been the prescription to maintain or enhance profits when sales volumes are down. Pfeffer argues that whether you term the practice as downsizing, right-sizing or restructuring, the damage will linger well beyond a perceived recovery in business activity. While companies argue that lack of financial resources or credit preclude the ability to begin large scale hiring, they can still marshal the financial resources to perform a large acquisition.

From the Supply Chain Matters lens, we have commented on how various supply chain activities have been impacted during these past months.  Cost reduction mandates have been targeted squarely to supply and value-chain activities, and as we have pointed out all too often, senior management expects even more in process and product innovation.  Layoffs reduce morale and add to workloads, causing other activities to slip.  Surveys conducted specifically among supply chain professionals point to a disenchanted workforce, looking to make a move from their current employer as soon as the economy will allow.  The burnout rate is increasing.

That is skilled talent wasted and abused.

Supply chain risk has been severely elevated because of the fragile financial and staffing conditions among key suppliers in many industry segments.  It seems that incidents of product recalls and contamination have risen dramatically.  There is certainly ongoing debate as to whether Toyota’s latest recall debacles were motivated by too much of an emphasis on reducing cost at the expense of consumer safety. Pfeffer cites a recent Gallup finding that active disengagement, defined as working to sabotage the performance of your employer, ranges from 16 percent to 19 percent.  You can certainly read of all of the other effects in the article.

No doubt, some readers may react in a political or social context that implies that layoffs and right-sizing are a reality to today’s business, so suck it up and move on.  After all, if your skills are that good, you should have no problem in finding new work. But what about the future of any cogent manufacturing and supply chain capability that remains in the U.S.?

I subscribe more to what Jeffrey Pfeffer’s powerful observations imply. The immense pressure for short-term results and strong action that management feels from the financial media, analysts and industry peers has indeed made many blind to the cumulative effects of such actions.

Too many of today’s surviving managers believe that the TV game “Survivor” provides the key to that million dollar bonus.  Is it the effects of the game on people and process, or is it how you play the game to win that matters?

What’s your view?

 Bob Ferrari

The following  is a guest posting that I have authored and can be viewed and commented upon on the Infosys Global Supply Chain Management Blog site.

The 2009 holiday buying season in the U.S. and indeed worldwide, presented two important learnings for the retail industry.  First, more consumers turned to online channels to perform price and feature comparisons as well as to execute their purchases.  Online channels were reported as being up 4-5% through mid-December of 2009.  One of the most significant takeaways from this year’s National Retail Federation (NRF) conference was that cost and value conscious consumers have discovered that online shopping and integrated merchandising are becoming a far more attractive option, and these same consumers demand more of these experiences.  The ability to research products, place orders online, pick-up or return purchases at the nearest local retail outlet have captured enormous interest, and consumers demand that these experiences occur without a glitch.

The second learning was that retailers stand to gain more profitability in practicing smart, lean inventory management strategies.  The notion of stocking and promoting just high-demand items, while exercising supplier contracts for quick turnaround drop ship or order fulfillment worked well for those retailers able to pull-off such strategies. Indeed, the results of such strategies are being reflected in added profitability for these retailers. In its 2010 Predictions for Retail Industry, IDC Retail Insights noted that the new winners in retail will be those who can cater to more informed customers, with immersed experiences, integrated merchandising, and instrumental execution.

The reality of immersed experiences and instrumental execution is really about discussions related to Multi-Channel Fulfillment Operations (MCO) or Multi-Channel Commerce (MCC).  The two terms are often confusing, having drastically different meanings for functional retail teams.  In his blog posting, Decide where you integrate: MCO does not equal MCC,. Gopikrishnan GR (Gopi) makes a rather cogent argument that retailers need to separate the two meanings, and focus on one building to the other.  MCC is indeed more about B2C commerce strategies related to the customer shopping experience via the web, including personalization, content and shopping cart experiences.  MCO in my view, is really about the capabilities of the retail supply chain to be able to integrate multi-channel sales and inventory fulfillment.   The imperative for retailers is to spend more time and consideration toward implementing a phased MCO strategy, one that meets the specific needs of the retail segment.

The new realities of MCO are fostering the ability of consumers to shop and place an order online or through a mobile channel, have real-time response to global inventory availability, reserve inventory, and have all order information visible to all pertinent partners in the supply chain. As Gopi rightfully points out, this is easier said than done.  In fact, many global manufacturers have struggled and spent considerable resources in implementing many similar type capabilities.  The notion of “walk first and run quickly after” have relevance, and multi-year strategy can be very common.

In my view, retailers need to take two very broad perspectives in addressing an overall MCO strategy.  The first should be the retail supply chain infrastructure and fulfillment processes that are required to effectively manage multiple-channel fulfillment.  Processes should include a comprehensive analysis of the total supply chain network, with a eye toward agility vs. latency.  Think of the means for streamlining inventory cross-docking or supplier drop-ship programs. Supplier sourcing and collaboration programs directed at rapid replenishment will be a rather important consideration. And if your retail operations include private labeling of products, network connections and information integration with contracted manufacturers are also critical considerations.  As noted earlier, optimized inventory deployment, predicated on demand intelligence, is very essential.

After process comes the technology that can best enable specific needs of MCO. The reality of this post-recessionary climate is that technology investments may have to be funded by incremental or ongoing savings in supply chain operations.  The good news for retailers is that there is much learning that can be harvested.  Order fulfillment technology providers who have demonstrated implementation experience have best practices that can be leveraged.  Multi-echelon inventory management software providers also have demonstrated the ability to help retailers implement smarter and more efficient inventory stocking and deployment strategies.  More options exist for technology deployment, including third-party or SaaS platforms. Finally, specialized consultants and system integrators with proven retail industry experience understand the nuances of how to walk before you run, and test before you go-live.

If you take one nugget from this posting, it should be that a seamless customer experience starts and ends with seamless supply chain capabilities.  While the task is complex, the rewards are the ability to be a leader in multi-channel commerce and fulfillment capabilities for customers. Profits will be the end result.

Bob Ferrari

Disclosure: Infosys is one of other Supply Chain Matters paid sponsors.

Note: The following posting can also be viewed and commented upon within the Kinaxis Supply Chain Expert Community web site.

Last week, the Consumer Analyst Group of New York (CAGNY), an association of Wall Street related analysts who follow consumer packaged goods companies (CPG), held their annual winter conference in Florida.  The conference features a who’s who of global consumer product companies who make presentations to this audience in an effort to increase investor confidence in these companies.  In fact, last week, Supply Chain Matters published specific commentary related to Kraft Foods, which was a presenter at the CAGNY conference.

I took the opportunity to scan some of the CPG presentations in an effort to ascertain both the impact as well as the future objectives of supply chain organizations within this industry.  Thus far, I’ve reviewed presentations from Colgate Palmolive, Con Agra Foods, General Mills, Hershey Foods, HJ Heinz, The Kellogg Company and Procter and Gamble. While it’s somewhat of an unscientific sampling of some of the major players and industry influencers, I believe it can be a specific indicator of upcoming supply chain challenges for this industry.

If I were to summarize common business themes among each of these companies, they clearly focused on maintaining top-line sales and profitability growth from an unprecedented and challenging 18 months of economic recession.  Almost all of these companies noted that they have targeted enormous opportunities for future growth from the emerging consumer markets in the developing regions, most notably the BRIC countries (Brazil, Russia, India, China). A lot of current and planned future product innovation stems from these regions.

Because of market challenges, the looking glass for required cost reduction rested squarely on the supply chain.  Many of the presentations positively touched upon the specific cost and productivity contributions driven among supply and value-chains.  Many cited specific programs and results attributed to cross-functional supply chain teams.

That’s the good news.  The not so good news is that more seems to be required.

To provide a sampling:

• Con Agra Foods is projecting $375M in cost savings in each of the next three years
• HJ Heinz is targeting better than $1B in incremental global supply chain cost savings over the next five years
• Kellogg has instituted a three year $1B plus challenge

Other commonly mentioned initiatives included:

• SKU and product rationalization
• Reduction of waste and increased productivity programs, including consolidation of manufacturing and distribution
• Reduction in cash conversion cycles
• More leveraged procurement sourcing
• SAP ERP optimization, broader deployments/adoption

Surprisingly, only one company, HJ Heinz specifically cited an enterprise risk management initiative.  That really surprises me considering both the rapidly increasing occurrences of product contamination, along with more extension of supply chains to the developing regions. In fact, some of these same CPG companies, Kellogg specifically, experienced a recent incident with its Eggo product line.

There has been much commentary around the blogsphere as to whether continuous cost cutting has taken a toll on cross-functional supply chain organizations and people.  Over on Supply Chain Digest, Dan Gilmore notes that supply chain managers are simply worn down and dispirited with constant pressures for cost reduction along with high hurdle rates for any new productivity or systems investments.

It seems to me that if this sampling of the CPG industry is referenced as an indicator, there are far more challenges yet to come.

Something obviously has to give.  Supply chain managers need to be upping their executive level communications and game plans, since constant cost cutting without some offset investments in productivity and faster decision-making can be a prescription for both lower morale and lower organizational energy.

How do others feel?   Is your industry and organization being affected by these same forces?

What proactive strategies have you exercised to manage such trends?

Bob Ferrari

Disclosure: Kinaxis is one of other paid sponsors of the Supply Chain Matters blog, and a client of The Ferrari Consulting and Research Group LLC.

Industry Week Magazine Chief Editor Steve Minter makes note in a recent column, The Case for Investing in U.S. Manufacturing, of a report written by Gregory Tassey, senior economist for the National Institute of Standards and Technology.  The report, titled Rationales and Mechanisms for Revitalizing U.S. Manufacturing outlines a fairly comprehensive set of arguments noting that the U.S. still lacks a comprehensive manufacturing strategy, and that aggressive programs for R&D investment in newer technology manufacturing process and ongoing capability is a strong imperative.  Minter cites the Tassey arguement that one of the major competitive challenges facing U.S. manufacturing firms is that they are operating as separate entities “against a growing number of national economies in Europe and Asia in which government, industry and a broad infrastructure — technical, education, economic and information — are evolving into increasingly effective technology-based ecosystems.”

While some may consider the report lengthy and laced with economic phrasing, it is worthy of a good read.

Regular SupplyChain Matters readers may note that this blog has been quite vocal in opinion that the U.S. currently lacks a comprehensive manufacturing investment strategy, and more importantly a comprehensive supply chain strategy. The Tassey report brings this fact out even more succinctly. Tassey rightfully points out that manufacturing should be viewed as a series of complex supply chains, rather than individual industries.  Certain raw materials, components, technological and supplier capabilities can serve multiple strategic industries.  Tassey goes on to point out: “The modern global economy is therefore constructed around supply chains, whose tiers (industries) interact in complex ways. In the U.S. economy, one supply chain after another has been hollowed out by increasing foreign competition. Most of these losses have been in manufacturing. In spite of arguments to the contrary, partial domestic supply chains often have increasing trouble competing globally. This proposition is complex, varying among technologies and hence high-tech supply chain. However, it is a real phenomenon that is receiving little analysis.”

Bravo, and well-stated.

What I also found to be insightful was Tassey’s description of the political environment.  He notes that most neo-classical economists find no problem with the progressive shrinking of manufacturing’s role in U.S. economic growth.  Their belief seems to be that as long as the U.S. concentrates on product innovation and technological edge, it does not matter where manufacturing is sourced.  These were the same economists who felt that the U.S. could continue to prosper under a services-focused economy.  Then came the severe recession of late 2008, and we now know how fragile that thesis really turned out to be.

I must admit that reading these statements penned by Tassey ignited some of my own frustrations regarding current political and industry leadership across the U.S.  It seems to me as though these same head-in-the clouds economists (Tassey excluded) still cling to their beliefs that manufacturing and supply chain capability does not matter in the grand scheme of economic growth and jobs.  After all, as the argument goes, manufacturing accounts for less and less of employment.  Bull crap!

If an economy doesn’t build value in the manufacture of goods, which in-turn drives the need for robust supply and value-chain capabilities, than we may as well all get in line for those few jobs left on Wall Street and the financial services sector.  Automobiles, apparel, drugs, mobile phones, iPods, you name it, they are all imported.  And as some have rightfully argued, if the U.S. losses the battle for alternative energy, green technology and other new economy products, game over.

So one last tirade and rant from this author.  The U.S. needs a comprehensive strategic manufacturing and supply chain strategy, not one solely driven by current political, labor or industry interests, but one that umbrellas all strategic industries.  If any reader knows or has influence with Larry Summers, Christina Romer, Joe Biden, and especially Ron Bloom, all within the Obama administration, please pass along these blog commentaries.

Hell, if somebody needs help in understanding any of this, send me an email and I’m sure I can gather dozens of credible supply chain strategy experts in a matter of hours to write the first chapter.

As Steve Minter astutely points out, the world is upping its game for manufacturing superiority.  Brazil, China, India and other developing countries are astute in understanding the strategic importance of manufacturing and supply chain capabilities.

When will the U.S. up its game?

Commentary and feedback is encouraged.

Bob Ferrari

The following Supply Chain Matters posting is provided for our readers on behalf of the Supply Chain Council.  Nominations are now open for the 2010 Supply Chain Excellence Awards.

After the awards are announced later this year Supply Chain Matters plans to profile some of the award winners, along with specific accomplishments.

Supply Chain Council Extends Nominations for Global Supply Chain Excellence Awards; Entries Due 31 March 2010.

Supply Chain Council (SCC) will hold this year’s Global Awards for Excellence Ceremony during the Supply Chain World Europe conference in Munich, Germany, just before the evening reception on 25 October 2010.  Due to this ceremony time change, submissions will be accepted until 31 March 2010.  Department of Defense submissions remain due by March 1.

This gives organizations more time to apply for the SCC Supply Chain Excellence Award.  Since 2001, SCC has honored organizations who demonstrate their commitment to supply chain operations and management through implementing and improving SCOR® supply chain projects. The Award highlights organizations across industries and geographies that have gone above and beyond in the pursuit of supply chain excellence.

Nominations are open in the following categories:

Supply Chain Operational Excellence

Supply Chain Academic Excellence

Supply Chain Management Technology Excellence

The Global Award for Supply Chain Excellence is presented to one of the winners of the other four awards. Learn more and submit a nomination today. The awards are open to members and nonmembers of Supply Chain Council.

Review selection criteria and guidelines

Winners are selected by SCC’s Technical Development Steering Committee and are based on four principal criteria:

1. Accurate demonstration of the implementation of the SCOR reference model,

2. Nature and complexity of the project undertaken,

3. Ability to objectively demonstrate the value of the project, and

4. Ability to characterize the project and effectively communicate its significance.

For further information, download the submission guidelines or contact Melinda Spring at mspring@supply-chain.org.

Disclosure:

Supply Chain Council (SCC) is a global non-profit organization whose methodology, diagnostic and benchmarking tools help member organizations make dramatic and rapid improvements in supply chain processes. SCC has established the supply chain world’s most widely accepted framework for evaluating and comparing supply chain activities and performance. The framework — the Supply Chain Operations Reference model (SCOR®) — lets companies quickly determine and compare the performance of supply chain and related operations within their company or against other organizations. SCC and its member volunteers continually advance these tools and provide education on how to leverage them for supply chain excellence. SCOR® is a registered trademark in the United States and Europe.

Bob Ferrari, Executive Editor of the Supply Chain Matters blog  is a current member of the North America Leadership Team of Supply Chain Council (SCC).