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Supply Chain Basics: Know Yourself & the Enemy

If I were to ask the most critical question with regard to what assures a company's success in its business sector, I would expect a variety of responses, including product quality, efficient operations, an aggressive and effective sales and marketing effort, key inside industry contacts, a good reputation, and, of course, innovative ideas for the products themselves.

These are all contributors to be sure, but may I suggest that the greatest advantage a company has over its competitors is knowledge. The company that has a thorough understanding of where it and its competitors are in the larger scheme of things has the best opportunity to take that knowledge and turn it into its greatest advantage.

No matter the nature of your “business,” the goal is to exceed your competitor's performance. I think of the athlete or team that possesses the inside knowledge of their own strengths and weaknesses and can move to compensate and improve in specific areas of weakness. Likewise, if a team can learn of and exploit a competitor's weakness, it has a much higher chance of taking the top prize.

In business, the top prize is market share. To that end, how does the individual supply chain operation assure its own place in the sun and not be overshadowed by the competition? If a company looks at its basic “stats” and reviews its performance history with brutal honesty, it provide itself the advantage of working with reality. This business reality has names like: sales; selling, general, and administrative expenses (SG&A); cost of goods sold (COGS); cash-to-cash cycle time; inventory days; asset turnover; gross profit margin; operating income; net income; and return on assets (ROA). Failing to record and monitor these basic areas is like flying in a dark room without instruments. Sooner or later, you will hit the wall; your competition will have one less competitor to worry about.

If your business has excellent data gathering processes and records, you will increase your competitive potential by making the corrective adjustments necessary to keep your company's health at peak levels. Just knowing where you are starting from can help you get to where you are going. Your company should be organized such that you have this data readily available and kept up-to-date. As you analyze these numbers, you will get a feeling of what you need to change and what it will take to get to where you want to be.

This may not seem like a direct supply chain differentiator, but consider the following: Imagine your body as a child growing externally without growing internally. Too many companies try to manage the external market while neglecting or not making full use of the information available within their own organization. Think of a baby's heart trying to push blood through a full-grown athlete's body, and it won't be hard to realize why a company's infrastructure needs to be properly sized and staffed to support effective data gathering and the interpretation of that critical data that defines the strength, sustainability, and overall health of the company.

In our next article, we will look at each of these data fields and explain how each area can be approached for systematic improvement. The end result will make any high tech company's supply chain more competitive, assuming — of course — that it has a product or service that is in much in demand. That's another competitive differentiator for the supply chain that we will be treating in a separate article.

7 comments on “Supply Chain Basics: Know Yourself & the Enemy

  1. stochastic excursion
    July 7, 2012

    Businesses are focused on the customer, the changing marketplace, and how best to cultivate it, sometimes to the point of not being focused enough on their own suppliers.  Executing marketing initiatives requires coordinating strategic partners in the supply chain.  

    This entails having the the business intelligance and the wherewithal to do the math on the available data.  Looking forward to seeing more on keeping the supply chain competitive!

  2. dalexander
    July 9, 2012

    @Stochastic Your comment made me think of how the whole supply chain persepctive has advanced through the years. Once upon a time, there was just Purchasing. The only time that Purchasing needed to think of the supplier was when something had to be bought or located. Now, there are entire departments dedicated to Supply Chain logistics. That gives the suppliers both a higher call to accountability, but also a closer connection to the companies to which they serve. I welcome the advance as the Suppliers are more than just suppliers now. They have become a central repository for component and business knowledge and their value added services are reaching way beyond simple middleman processes. You make a great observation. Thanks.

  3. bolaji ojo
    July 9, 2012

    Suppliers can't afford to just sell widgets anymore. The customers require more than just a great product. They want some innovation support, research data, more nurturing, a little handholding and even a back rub. Suppliers will give these and more to clinch the sale.

  4. prabhakar_deosthali
    July 10, 2012

    Having suppliers very close to your strategic product planning may sometimes be counterproductive as the suppliers who may also be supplying to your competitors may manipulate your or your competitors strategies to their own advantage .

    Don't you think this is a double edged sword?

  5. dalexander
    July 10, 2012

    @Prabhakar, You bring up an excellent consideration. It is important to give your suppliers just the right amount of information and no more. For instance, if you are buying a new part, they generally want to know things like: anticipated quantity, ramp-up schedule, and they will even ask “What product is this going to be used on?” Now, you can just tell only what they need to know or if it is important that they know for any reason, then have them sign an Nondisclosure Agreement, (NDA). But expect, if they are a distributor, that they will tell their OEM or OEM Product Manager the bare essentials required to get the initial business that would give both them and you most favorable pricing. That is the trade-off. The most favorable pricing is contingent on supplying the basic information. You can also be very general in your description by saying things like, “This is for a new CATV development project”, or “We are in stealth mode and that information is restricted at this time.” BTW, the old addage, “The who gossip to you will also gossip about you”, is generally true. Test your supplier from time-to-time and see if they will get you information on one of your competitors. If they come up with some news you should not know, don't give them any sensitive information whatsoever. If your supplier is doing you “special” favors, rest assured, he is doing the same for your competition.

  6. bolaji ojo
    July 10, 2012

    I am curious. How do you determine the “right” amount of information to give a supplier? Do you answer only the questions they have or do you add information they may not request but which you believe they need and where do you stop? From your experience, what are the conditions you use to determine what to talk about?

  7. dalexander
    July 10, 2012

    @Bolaji, The “Need to Know Rule” applies here. Every buyer has his or her favorites. These relationships are formed over time. Generally speaking, the closer the professional business relationship, the more the supplier is trusted with information that may be either dealing with time sensitive releases, strategy or product particulars. In some cases, the supplier's products are so specific and unique in their respective applications taht the supplier already knows a lot about your product without asking. An example would be something like a High Definition encoder with specific media interfaces like MPEG3 and 4 or H.264. In that event, the supplier can surmise that you are designing an AV product that will be compatible with various transport or modulation schemes. So, you say, “We are developing a high definition AV product for the CATV industry.” You don't say how many transport streams on your final product or include other liscensing requirements because then you have announced marketing specifics that become the rumor that says A is developing an “i” version X for the Y market.  You may have just lost your Marketing thunder. For new component introductions, you have to say when you will need volume product in order to acertain suitabiity of the component's selection based upon availability. In other cases where your supplier is making the product specifically for you, an NDA is most important. In that event, you have shared a lot of secret sauce ingredients to ensure compatibility with your design. Don't say too much and don't say too little. Let your supplier prompt you for questions, but don't answer the ones they don't need to know in order to fully support your effort.

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