Wednesday, August 25, 2010

Best Practices: Not Good Enough

Are best practices enough to create competitive advantage? What about adding business capabilities when you need it – the organically growing business function capabilities that most firm subscribe to? My contention is that both of these practices, though wide-spread, do nothing toward creating competitive advantages, because both of them are reactive in nature. To create real advantage, firms must be pro-active and must design their capabilities to forge ahead, to pioneer, to create advantages that are not yet “best practices”. This is one of the takeaways from my upcoming book on supply chain strategy.
Listen to my audio blog below supported with real examples from the industry or read below to see why. Part of my ongoing interviews with Logipi: Supply Chain Intelligence.

Vivek Sehgal Best practices & organic evolution of business functions
Last time, I spoke to Dustin about my upcoming book on supply chain titled, “Supply Chain as Strategic Asset: The Key to Reaching Business Goals”. We spoke about the main takeaways from the book. The first takeaway we talked about was how best practices can only lead to parity and not competitive advantage. And that is the subject for today -- I will explain it further and provide some examples to support the concept.
First and foremost -- the best practices are based on an industry’s general idea of handling an existing process that is considered optimal. This has two consequences -- first, this is not a forward-looking exercise, but reactive -- the best practices are based on what the industry does today and not focused on the future, it misses on innovation. Second, since these practices already exist, pursuing them can only bring parity with the generally acceptable business capabilities in an industry. To create competitive advantages, the firms must create capabilities that are better, superior, and go beyond the “generally acceptable business capabilities” within an industry.
Consider what would have happened to Dell in mid-80s, if it had decided to pursue the so called industry best practices. The best practice for the personal computer manufacturers, at the time, was to take large orders and make quarterly deliveries to the intermediaries. Dell’s “configure-to-order” model was definitely not a “best practice”, but a mere novelty. But for Dell’s business model based on providing differentiated products and experience, it made the most sense. There were other innovations as well, that Dell started which were definitely not the industry “best practices” at the time. Consider the fact that Dell set-up manufacturing factories close to the customers so that they can ship the machines faster, or the fact that the end-consumer could configure the exact specifications they wanted on a machine and track the status of their order as it was being built, or the fact that Dell started a substantial vendor-owned-inventory practice in the manufacturing industry -- and did it to their advantage. None of these were anywhere the “best practices” at the time -- had Dell fallen into the trap of following “best practices”, chances are they would have gone the Compaq way. Instead, Dell planned their own supply chain evolution, their own “best practices” by aligning their supply chain to their business strategy that was based on providing a differentiated product and a differentiated experience to its customers. This meant that Dell wanted to provide the customers the ability to configure their own machine, track their orders, build them fast so they can be shipped faster to their customers, and so on. And instead of looking to the “best practices” to help them, Dell analyzed the business requirements and pro-actively created what worked for them.
That brings me to the secondary point that business functions that grow organically -- simply don’t deliver any competitive advantages. Again, the underlying reasons are similar -- the model of organic evolution of business processes is reactive by design and therefore, it is like building fire-fighting infrastructure when the house is already on fire. To be successful, you must be pro-active, to build competitive advantages, you have to plan ahead and build capabilities that you will need to grow and be competitive -- instead of simply reacting to the business needs of the time to build capabilities.
Another great example is Wal-Mart. During Wal-Mart’s early years, the best practices in Retail were defined by companies like Kmart -- there were not many retailers with their own distribution network, not many retailers who had cut-out the wholesalers and bought directly from manufacturers, and not many retailers who had real-time data communication with their stores! Wal-Mart created these capabilities, not by looking at the industry “best practices” and not through organic growth, they created these capabilities pro-actively and by following their business strategy of becoming and staying the price-leader. And of course, Wal-Mart continues to innovate -- the latest innovations being the cross-docking operations, real-time demand sharing with vendors, RFID…. the list continues, and once again, Wal-Mart is defining these “best practices” that work for them, pro-actively creating business capabilities and building competitive advantages rather than simply reacting to the business needs of the moment.
So, that is what I mean when I say that pursuing the best practices is just not sufficient, nor is organic evolution -- if you wish to create competitive advantages, you must pro-actively design superior capabilities to create those advantages.
Next time -- I will talk about the next takeaway of why the existing supply chain strategies don’t deliver and why is it necessary for the firms to deliberately design their supply chain rather than pursuing concepts that are just not relevant.
© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.

Monday, August 23, 2010

It Works in Theory, But…

image How many times have you heard that – I bet it is more than a few! Latest, I heard it a few weeks back in my discussions with an industry executive on the subject of aligning supply chain strategy to their business strategy. I was discussing a concept from my book on supply chain strategy that corporations must explicitly design supply chain processes to deliver directly toward the goals of business strategy. For example, if price-leadership is your goal, then you should be designing your supply chain to squeeze cost out which would mean initiatives like reducing shipping expenses through optimized shipment planning, load utilization, reducing miles; or increasing warehouse efficiencies through better labor scheduling, wave planning, stocking efficiencies, etc. Contrast this with a business strategy that is based on product differentiation – in which case, your supply chain should be focused on product design, mass-customization, product-quality, and so on. Similarly, if your business strategy is based on customer-service, the supply chain must enable customer centric capabilities such as order fulfillment, tracking, visibility during manufacturing and transit, etc.
And then, I was hit with: It works in theory, but … Unfortunately, this was not the first time and I am certain won’t be the last either. Almost any time, the process involves an optimization engine, mathematical programming, or some complex statistical modeling – anything that is hard to understand and appears like a back-box – I have heard the excuse. Though I am not sure how is this any different from driving a car that has ABS, differential-drive, or air-bags – which are pretty standard equipment but that does not mean that we understand exactly how they work!
This time, though, I was surprised to hear it, because it came from a corporation that is considered a pioneer in its industry.
I understand the sentiment: Corporate leaders everywhere are becoming more cost-aware and to that extent, less willing to go with new or unproven concepts, irrespective of their validity in theory. But is that really the role of leaders in a corporation? I don’t believe so. If that was the case, we would not have almost any of the innovations in management that we take for granted.
  • Before six-sigma became a staple corporate diet, it was merely a statistical theory.
  • Before SPC (statistical process control) became a standard method for controlling quality, it was merely a statistical theory.
  • Before linear programming became fashionable in solving supply chain problems using the constraints of available material and resources, it was merely a mathematical theory.
  • Before time-series analysis became a standard in demand forecasting, it was merely a theory……
In fact, the list goes on. There is merely anything that we can point to – that was not a mere theory before becoming a reality. That is just the way of progress, the way of human evolution. And to think someone can deny that basic, fundamental, logical, way to grow, evolve, make progress – it is just unthinkable.
The role of a corporate leader, specially in the companies that are pioneers in their industry, is not to play so safe that anything new on the horizon remains an anathema until it is history, but rather judiciously select those theories that have promise and would allow them to continue to be pioneers.
If everyone waited on another to prove a theory before adopting it, won’t we still be living in the trees!
© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.

Wednesday, August 18, 2010

Supply Chain Risk only Second to Financial Exposure

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In a recent survey of 168 senior finance executives by the CFO magazine, it reported that supply chain risk was second on the CFOs list immediately after the risk of financial exposure. You can read the original article here at or see the summary below.

Financial exposure

Supply chain/logistics disruption37%
Legal liability/reputational harm 35%
Technology failure33%
Security breach23%
Natural or manmade disasters 21%
Physical-assets failure8%

It also brings out another very important point. The survey also found that, “companies often pay disproportionate attention to recent disruptions when planning for future risks………although the research suggests that many companies would benefit from a more forward-looking approach to managing risk.” This is indeed an important finding – what it highlights is that companies must continuously analyze their operations to find the potential risks as their operations and business environment changes and address them rather than simply looking back to identify their historical risks to ensure they don’t happen again. This is easier said than done, because this involves a serious analysis of the business operations and processes, and assessing their vulnerabilities. Most corporations simply do not have the organizational skills or the inclination to invest that kind of time unless the incentive to do so justifies itself!

You can also read more on supply chain risk at

© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.

Tuesday, August 10, 2010

Summary of My Upcoming Book on Supply Chain Strategy

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Supply Chain as Strategic Asset: The Key to Reaching Business Goals

Vivek Sehgal

ISBN: 978-0-470-87477-6


336 pages

January 2011

Pre-order at Amazon or Wiley

Or click here to see the Table of Contents

You can also listen to my interview with Dustin Mattison of Logipi

Creating an effective supply chain is essential to compete. But the scope of supply chains is so vast that simply defining what is an effective supply chain is a tough task, let alone creating it. This book provides a valuable roadmap for defining and creating a supply chain strategy that will help you create an effective supply chain that supports your business strategy. It begins by providing an overview of the generic business strategies and proceeds to define supply chain strategies, reviewing the strengths and weaknesses along with the reasoning behind selection of a specific strategy over the others.

It investigates the relationship between some of the well-known business strategies and how they may affect the selection of the supply chain strategy. As technology is the de-facto enabler of business capabilities in current times, therefore, the book also provides a good overview of the prevalent practices in developing and pursuing effective technology strategy that will best support the business needs.

The objective of this book is to explore the relationship between the three strategies: business strategy that sets the goals, functional strategies (with specific focus on supply chain functions) that define the business capabilities to achieve the business goals, and the technology strategy that enables building the business capabilities effectively. I believe that senior executives who understand this synergistic relationship can transform their companies most effectively by prioritizing the capital investments that are fully aligned with the business goals of the firm and hence provide the best returns on the investments.

Here is how this book is organized.

Chapter 1

The first chapter provides an overview of the underlying precept of the book which is the belief that the business strategy of a firm must define and drive the competitive advantages sought by it. In turn, these competitive advantages sustain the development and growth of the business of the firm. The process of the creation of superior business capabilities from the corporate strategy consists of the strategy development, strategy planning, and strategy execution. This chapter provides an overview of the process describing these steps, introduces the concepts of functional and deployment strategies and their relationships with the business strategy. In doing so, it lays the foundation for the rest of the book and the flow of the discussion on the subject of strategic alignment among the business, functional, and the deployment strategies.

Chapters 2 and 3

In these two chapters, I review the basic concepts of business strategy. This is done by reviewing the existing literature and concepts on strategy development and management. I review the fundamental strategies as first suggested by Porter and how these strategies affect the supply chain management functions in an organization. In addition, I also review the resource-based view of strategy and the concept of competing on capabilities.

Real-life examples from the industry are used to explain how the basic concepts of strategy have evolved and what does that mean to the strategy development and implementation processes for the companies today. The scope and frequency of changes in the global environment makes the process of strategy development more complex and this rapid rate of changes also affects the process of strategy development by requiring that the frequency at which the business strategies are reviewed becomes shorter.

Since there is abundant literature available on corporate strategy formulation and development, I keep that part of discussion limited to a review of the main concepts on the subject, but spend more time on relating these concepts with the functional and deployment strategies as well as the impact of changing business environment on the conventional concepts of business strategy as summarized earlier.

Chapters 4, 5, and 6

These three chapters of the book focus on functional strategy, the definition, concepts, and its role in supporting and realizing the strategic objectives. Functional strategy has not been an explicit part of strategy development so far and provides an excellent opportunity for the corporations to distinguish themselves by aligning their operations with their strategies through the development of a functional strategy. Functional strategy development is the part of strategic planning where corporations must analyze their functional capabilities, understand the gaps that will cause strategic failure, understand the enhancements that will not only allow a short-term win, but also provide a competitive advantage that can be sustained in the medium to longer term; and finally, help them prioritize their investments into building the capabilities that are required for strategy realization.

Businesses need many different functions to operate effectively. Examples of such functions are human resources, marketing, product development, supply chain, merchandising, accounting, and so on. Any of these functional areas can become a strategic focus for the corporation, if the capabilities enabled by that function can help the company achieve the goals of its corporate strategy. However, I focus primarily on the supply chain functions. I review the fundamental strategies that can be pursued for designing supply chains, understand what these are and when to use them, and relate these supply chain strategies back to the business strategies to show how they can support the corporate strategies and help realize the goals set by these strategies. We will also review how these functional strategies not only depend on the business strategies, but also affect them in turn, setting up not a one-sided but an active two-sided relationship between the two.

Chapter 7: Technology Strategy

In this chapter, I review the role of technology in today’s corporations with specific focus on its ability to create and maintain capabilities that are central to the competitive advantages sought by their strategies. We will see why technology management should be viewed as one of the primary competency of the business rather than a supporting activity that has been the conventional view in most corporations.

This chapter provides an overview of the enterprise architecture and its role in defining and implementing a technology strategy. I evaluate the current state of enterprise architecture in the corporations, its organizational limitations as well as the opportunities and potential evolution. Then, it identifies the factors that inhibit the enterprise architecture from successfully driving technological change that can lead the corporations from viewing the technology as a necessary evil to viewing it as an evolutionary enabler.

A successful deployment strategy consists of aligning the technology strategy with the business and functional strategies so that capital investments can be prioritized towards creation of coherent and sustainable solutions that create long-term competitive advantages for the corporation. This theme continues in the next chapter, where I cover how achieving such an alignment provides an agile, flexible, and cost-effective process for the creation and maintenance of competitive advantages in an ever-changing business environment.

Chapter 8: Keeping It All Together

In this concluding part of the book, I explore how the three strategies, business, functional, and technology, come together and enable the corporations to create and maintain competitive advantages that are sustainable in the long term. We will cover what types of organizational structures support such alignment and others that inhibit it. I also cover other organizational factors that affect successful strategy alignment and suggest how to manage them better to achieve the holy grail of functional capabilities that can keep a corporation at the edge of the value creation frontier.

© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.

Thursday, August 5, 2010

Supply Chain as Strategic Asset: The Key to Reaching Business Goals

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I recently spoke to Logipi’s ( founder Dustin Mattison about my new book on supply chain. This book reviews the concepts of business strategy and explores the relationship of the business strategy with supply chain strategies. It also establishes a process that firms can use for planning their functional evolution so that they can pro-actively create advantages sought by their business strategies rather than reacting to the demands of the business. In the discussion with Dustin, I talk about what is special about this book and the main takeaways.

Click below to listen to the interview or scroll down for a script. And, come back to check for more on the takeaways from this book explained with examples from the industry.

Vivek Sehgal New book on “Supply Chain as Strategic Asset: The Key to Reaching Business Goals”.

Dustin: Vivek, we can start by you introducing yourself to the audience.

Yes, absolutely. My name is Vivek Sehgal and I work for Manhattan Associates, that is a best-of-breed solution provider in the supply chain applications area. We have over 1200 customers world-wide and most of the largest retailers use our solutions. I have a long supply chain consulting background and have also written two books on supply chain, one of which is coming out in this December.

Dustin: Tell me a little about this new book on supply chain.

Dustin, my new book on supply chains is titled “Supply Chain as Strategic Asset: The Key to Reaching Business Goals”. It is currently in print and scheduled for release in December this year. It is being published by John Wiley & Sons and will be distributed through all major book retailers as well as online through Amazon & others.

As the title suggests, this book is about building competitive advantages. It talks about how companies can deliberately design their supply chains to build capabilities that will create the competitive advantages they need. In doing so, of course, the supply chain becomes a strategic asset for them, directly supporting their business goals, and aligned with their corporate strategy.

Dustin: There are similar books on the subject, what is special about your book?

There are quite a few things that make this book unique. This is the first book that brings together the business, functional, and technology strategies and explores their relationship. You will find a lot of books on business strategy, a few on technology, but almost none on functional strategy. The problem is that while the business strategy establishes the goals of the business, it does not say what business capabilities are required to achieve them? That is the role of the functional strategy that I explore and since technology provides the underlying platform for enabling most of the business capabilities: today’s executives have to understand the whole spectrum of strategic planning - from business to functional through technology - to be able to lead. Conventionally, the link between the business strategy and functional strategies has not been understood and explored very well - but the fact is that the functional or process capabilities are the tools that help firms achieve their goals and therefore, to pro-actively build competitive advantages, it is essential to understand what capabilities must be developed to support their business strategy and compete effectively in the market-place.

I will take an example. Conventionally, the supply chain capabilities in most companies grow in an organic fashion. You need an order capturing process today, so that is built, then someone needs to address the customer questions on fulfillment status, so an addition is added to track the fulfillment process and so on. But an organically grown function is never going to provide any competitive advantage to you. Why, because it is reactive by nature - it only solves those problems that have already been encountered by your business & others in the industry, it is not forward-looking, it is not innovative and it does not pro-actively address the needs of the future. And, that is a very typical model of how the functional capabilities in the corporations are built. In this situation, there is no planned evolution for building supply chain capabilities - in other words, the firm has not taken the time to analyze its needs based on its strategy and establish how it should evolve its supply chain capabilities to support those business needs.

Dustin: Ok, so you are saying that the current state of affairs where functional capabilities organically grow to respond to business needs is inherently deficient -- because it is reactive by design. What would be some other main takeaways from the book?

In fact, there are a few that I would like to mention:

  • Most industries while developing their functional capabilities look at the industry best practices. But think about it: pursuing these best practices can only bring capability parity -- not competitive advantages, because these practices are based on what the industry does today, not what it will need tomorrow! Of course, we just talked about how the model of organic evolution to respond to business needs is inherently deficient -- because it is reactive by design. If you want to create competitive advantages, you will have to pro-actively build your capabilities.
  • Next takeaway I would mention is specific to supply chain, I review the current strategies that center around lean, agile, speculative, postponement. I think, this view of supply chain strategy is deficient and misleading. Because, in practice, you obviously need a supply chain that is lean but also agile simultaneously - to me these are not two exclusive attributes, but two firm requirements that a supply chain must provide. The other two strategies of postponement and speculation are equally misleading - because those options are a consequence of the industry and the product attributes - for example, if you manufacture pencils, you will be following a build-to-stock or speculative model. This is pretty mush true for most utilitarian products where the postponement is not an option - for this reason, I do not consider speculative and postponement as real supply chain strategies. For understanding supply chain strategy, we must go back to basics: the only objective of supply chain is to manage variability, which means the objective of the supply chain strategy must also be to manage variability to support the goals of business strategy. Since supply chains only control four common components (demand, supply, inventory, resources), these remain the only levers for managing variability and furthering the goals of business strategy. So if you wish to create competitive advantages through supply chain capabilities, you have to think beyond the best practices, beyond the templates, and beyond the lean and agile concepts. The only way to create competitive advantage is by creating superior processes through deliberate design and do this pro-actively. And how do you know that a process superior to another -- when it has the ability to create at least one of the advantages of Time, Cost, Efficiency, or Quality.
  • My next takeaway is that supply chain strategy must be derived from the business strategy - and not in a vacuum or by claiming that we need a lean or agile supply chain because that is meaningless. And remember that the competitive advantages through supply chain must be built into the processes by pro-active design (not by pushing industry best practices or organic growth of capabilities). Current practice in most companies is to bring in supply chain solution vendors -- with consultants pushing industry best practices (that you would remember lead to parity, not advantage), and companies’ internal staff intent on transferring their existing processes onto the new technology (leading automation of existing processes, not competitive superiority) instead of transforming through analysis of their requirements driven by business goals and designing superior processes. None of these current practices are going to help you create competitive advantages.
  • The last takeaway from the book will be that for an optimal ROI on capital investments, both the business and functional strategies must exist and must be aligned -- because that is the only way to avoid investments that do not contribute anything towards achieving the business goals.

I would really like to talk to each point with real-life examples -- some of these concepts are not obvious unless explained with the help of examples. Possibly next time?

Dustin: Sure, that sounds good, we can continue the discussion next time and you can elaborate these takeaways with examples. Thanks for today.

Thanks Dustin and I look forward to continue the discussion next time. Thank you.

© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.