Independent and Proud: Delivering New Insights From Supply Chain Research

Over the last decade, the implementation of supply chain software was a gravy train. How so? There were lots of projects driving large revenues for consultants. Recently, the pipeline is drier. The market is shifting to new technologies and consultants are scratching for new work. It is more competitive.

Make no mistake about it, when you tender a Request for Proposal (RFP) there is no place for the words “INDEPENDENT THOUGHT LEADERSHIP” in the response from a consulting partner. Consultants learn on the job from their clients and most are heavily influenced to sell technologies that maximize their revenue. Often, we find that this is not in the best interest of the client.

Let me give you an example. Last week, I offered to do research for a client. I followed up on an urgent request and sent the client a proposal. The turnaround required on the project was tight requiring the client to respond right away. The prospect promptly contacted three consultants and another research firm for alternative bids. (The focus of a consultant’s research is to sell more services.) The consultants do not have the capabilities to do the work, nor does the competitive analyst service.

I am not a consultant. I am a research gal. There is a big difference. It is clear to me that this difference is not clear to my prospect or the larger market. That evening I shut my laptop and let out a big SIGH. Independent research in the field of supply chain is hard work. What I do is not well understood.

Reflection

Independent research requires a strong commitment. Let me explain. True research costs money. Currently, I spend 22% of revenue on independent research. While we will do a custom project or two here and there to keep the lights on, the majority of our projects are self-funded. We design and code studies and seek independent populations. Unlike my prior research experience, we do not use research panels. We know our respondents. (In using a research panel, you cannot match balance sheet information with the quantitative responses because you do not know the company name or the respondent identity.)

The research that we do at Supply Chain Insights is also very different than academic research. I learned this the hard way while working on my DBA. While academic is backward-looking focusing on citation, technology research is forward looking based on possibilities. These are two very different approaches with very little in common.

Finding the money to do true research is a challenge. Technologists want endorsement. The pink ghetto marketing machines (…usually a group of frustrated middle-aged women struggling with a glass ceiling.) seek help to write “white papers” and “endorsements.” I don’t do white papers. No one pays me for my ink.

Additionally, events are mistakenly focused on lead-generation. In this process, true thought leadership takes a second seat. (This is why in the supply chain industry that we have so few good events.) It is hard to sell independent research to this type of client.

In contrast, business leaders seek tried and true methodologies at Indian consulting firm rates with net 90 terms. (The reader can quickly see this disconnect.) Academics also become competitors. Most Universities have diversified to host a supply chain networking event to understand best practices in supply chain management. (I would argue that we do not know what best practices are. Most are discussions on historic practices.)

Gaining Clarity

We are all biased by our experiences. In my research efforts, I fight mine. I would argue that consultants, technologists and academics have additional biases. How so? They are biased by incentive systems.

The bias in academic research is driven by the focus on the number of citations. Consulting research is a form of marketing to sell services. It is not independent. (And, in my opinion, not very good.)

OK, I admit it. I am a research snob. I am not sure how I got this way, but I have a quest to unveil the truth even if it hurts. I relish in the design of a good survey. In my own way, I think that I am helping people. (I hope that I have helped someone somewhere.) It is for this reason that I started a firm focused on research. Yes, independent quantitative and qualitative research triangulated with technology providers and validated by fifteen years of balance sheet and income statement data. I want to know how the choices we made in technology and business process development translates into business results.

Today, I am taking an airplane from Philadelphia to Chicago to facilitate a session of our new experiential game, Supply Chain IMPACT! The game is designed to help individuals understand the impact of supply chain strategy on business results. I believe that supply chain management is “heady-stuff” and that game play helps people to learn.

When I land in the Chicago airport, the walls will be plastered with consultant and technology advertisements. You have seen the many promises. “Best run companies use SAP.” “Accenture improved Company X Results by PDQ.” (The Tiger adds are gone.) “Oracle leaders in XYZ industry.” The ads are a great revenue stream for airports, but are the advertisements defensible? The research says no. Let's take a closer look.

Research Findings

With help from Cloudera (a big data analytics firm), we started a project three months ago that I lovingly termed “dogfood.” (The name comes from my desire to more closely analyze my group's research and the old phrase, "Eat your own dog food.") This research assembled information from 1494 public companies, mostly North American manufacturing and distribution companies, using 493 balance sheet and income statement ratios from the period of 2004-2017 along with quantitative data collected during the period of March 2012 to 2017. After data cleansing, we had 1063 respondents representing 756 unique companies responding to 128 questions representing 28 factors. Each company was assigned a unique ID to mask the data (removes bias) and the companies were assigned to peer groups based on the Supply Chains to Admire Methodology. Within an industry, we grouped companies into three tiers—top, middle and bottom—for cost, growth and value measurements for the period of 2010-2016. (This full report will publish next week.)

Results

There is no correlation between technology selected or consultants used. Instead, it is a study in culture.

• Top-performing process companies have a higher performing Sales and Operations Planning process than their lower-performing counterparts, and they believe their supply chains are working well. The correlation is also seen specifically regarding cost measures (EBITDA, Cost of Goods and Operating Margin). These top-performing companies question that their supply chain centers of excellence are effective, in comparison with the lower-performing counterpart companies.
• Overall, there is no significant difference between tiers of companies and performance to market indexes like GDP, PPI, and IPI. All tiers of companies move in similar rhythms to market trends. GDP has a strong correlation to market capitalization. My point of view is that this is because companies are inside-out and cannot sense market trends. Instead, they are buoyed up and down based on market trends.
• The development of talent reduces cost and the investment in supply chain planning improves balance and resiliency. This is one of the biggest insights.
• Companies who perceive they excel in areas such as clarity of inventory targets, access to supply chain costs, that supply chain centers of excellence are effective, and are satisfied with their planning capabilities, surprisingly post poor performance on financial metrics of cost and inventory. Does this mean that supply chain planning is a bad move? No. My reasoning? Most companies are not clear on how to create the culture of planning including the definition of supply chain excellence, the building of talent and the move away from a reactive culture. In addition, in many organizations, planning technologies are poorly implemented and often not used very well.

What Does This Mean?

To help the reader, let me define some terms.

• ·What is an Effective Sales and Operations Planning Process? An effective S&OP process reports to the P&L leader and focuses on the tactical time horizon (from the slush period (3-6 weeks) through 9-18 months). It is not short-term focused on the quarter. In addition, there is balance between the “S” and the “OP” and alignment between commercial and operational groups and financial and operational groups.
• ·What Are the Characteristics of a Good Talent Program? In our research, we find that companies that excel in the management of talent invest in employees. There is a clear vision of supply chain excellence, continuity of leadership, a balanced scorecard to foster horizontal process development, and educational opportunities. These cultures are not insular. Instead, they encourage diversity of thought, foster networking and encourage employees to attend conferences, seminars and train with thought leaders.
• ·What Is Balance? Balance is consistent improvement in corporate progress at the intersection of growth and asset utilization (ROIC).
• ·How is Resiliency Defined? Resiliency is the reliability of business results at the intersection of inventory turns and operating margin. Companies with smaller patterns on the orbit charts are more reliable in driving consistent results. The swings are smaller and more predictable. To understand this concept reference Figure A.

Figure A. Orbit Chart at the Intersection of Operating Margin and Inventory Turns

Closing Thoughts.

Technology is an enabler. It is not an end state. Technology for the sake of technology is a pointless discussion. In retrospect, I think we have invested too much time and energy in a technology discussion over the last two decades when we should have focused on building cultural DNA.

In the process, lots of charlatans have gotten very rich through preaching best practices that did not materialize into actionable results. ....perhaps there is a reason why consultants don’t invest in independent research. 

I welcome your thoughts.