Rationalizing supply chains improves efficiency, increases risk- shows Japan crisis

Did you know that 74% of all car navigation systems (March 26, 2011) are made in Japan? That’s what a report from 2011 says and highlights risk issues with rationalizing supply chains.

[Note: this post is from March 25,2011 and was updated for formatting issues on May 22, 2021]

As soon as you start looking at the Vendor master data of any large manufacturing operation, you realize that there are a large number of suppliers who seem to be supplying the same type of items. This happens in pharmaceuticals, engineering, technology,chemicals or whatever. So the first step on  supply side efficiency improvement becomes trying to cut down the number of suppliers. Usually a simple 80:20 analysis will result in removing the bulk of the suppliers from whom you buy small quantities anyway. This supply chain rationalization is also one of the first things that happens in mergers of corporations.

This is just great for supply chain and procurement folks,quality and production folks and even accounts receivable and IT folks. You just deal with fewer vendors. Gives you  a lot more time to deal with all that’s going on in the company.

As mentioned earlier, high cost countries are trying to get into high value-add activities which necessarily involves concentration of suppliers. So 74% of the navigation systems are made in Japan and since they do such a great job at a great price there was really no need to split the business with other global auto locations like Germany. There are two implications of such supply concentration:

  1. There is a serious disruption of supplies in case of natural calamities as in the Japanese case.
  2. The prospects for innovating in that category just gets stuck in one location. The navigation systems fit into cars worldwide – so every change means a great deal of retooling and work all around. There is an inertia that sets in and retards innovation ,which has been much researched, but more on that later in another post.

About StratoServe.

Seed companies look down the fresh produce distribution channel to innovate

If you are on a diet then you look at the fresh vegetable aisle in the grocery store and wonder whether the baby carrots are too sweet. You might also note differences in the rates of water spraying between grocery retailers. The same lettuce when sprayed,drained and in a well lit shelf looks great and your dieting efforts get a whole new motivation!

Seed companies look closely  at changing consumer behavior to innovate. They look at what the farming practices are, how the distribution to retailers work and the kind of changes that customer is willing to try. If you are in the salad  aisle you probably are much more open to try something new that is available. You are not being brand loyal here but are more motivated to buy produce that looks fresh. 

This willingness of customers to try something new in fresh produce puts a huge innovation pressure on seed companies. They must be on top of consumer preferences,retailer and distributor working styles and the lead time it takes for the fresh produce farmer to grow produce. And you can be sure that if you are a seed producer producing yesterday’s consumer  needs,  farmers will abandon you rapidly.

Compare the speed of today’s farmers in rejecting non-innovative  seeds to the legendary slow technology adoption by the hybrid corn growers of Iowa. Today’s farmer might put out a Tweet or Facebook message to friends as soon as s/he sees a particular lettuce selling better in the market!

Hybrid corn seed growers had a hard time to convince farmers to try them and now no innovation is soon enough  and Lisa Zaglin, marketing director for Feasterville, Pa.-based Abbott & Cobb, said “consumer demand for quality produce on a 12-month cycle has breeders under the gun to provide varieties that can be grown under diverse growing conditions in different regions” . (source The Packer – March 2011 article link not working).

About StratoServe.

MetLife Chief Investment Officer Steven Kandarian becomes CEO for prudent investments

Steven A. Kandarian the Chief Investment Officer of MetLife has been named CEO in part for his foresight in not investing in subprime mortgages. “We like what we have on our books” Kandarian says towards the end  at a Bloomberg interview – June 10, 2009 – almost two years ago  -see the video:

As the sub-prime mortgages continues to assail US real estate, we need to celebrate people like Steven A. Kandarian who did not join the sub-prime bandwagon despite an euphoric atmosphere  and undoubted pressure at the time.”If only” more executives had refused to buy doubtful mortgages – wealth in middle America would be very different today. For example, with more investor managers questioning the content of the sub-prime mortgage backed securities would have put a brake on their market. With no market for sub-prime mortgages,perhaps the upstream individual bad loans might have slowed down.

In any case, when it comes to the mortgage mess and its continuing pain,media reports of  positive executive action is pretty rare. It is for this reason that we should celebrate Steven Kandarian’s recognition as CEO of MetLife.

About StratoServe.

Learning fortitude from the Japanese and the iodized salt rush

The world truly bows to the Japanese for their fortitude in crisis. Have you seen images of:

[ Note: This post from March 22, 2011 was updated for formatting issues on May 31, 2021]

  • People pushing each other as they stand in long  lines for food,gas etc. ?
  • Angry people, yelling at each other?
  • Despair on faces even as people flee the radioactivity?

 No, Right?

  • Did you notice that the Japanese people are equally skeptical of their Government like anywhere else  (for soft pedaling the radiation issue)

– And yet they do not rave and rant about the inability of the power company to either get to the truth or have the  courage to say the truth.

Today, when we went to the grocery store in the US East Coast  to buy table salt among other things, I found myself looking for table salt that was “iodized” instead of great crystals of crush-able Mediterranean sea salt.  The sudden interest in iodized salt was spurred, not by the Japanese radioactive leak  but by the imminent leaks in and around the North East  US  nuclear power plants – that the news channels assure !

The sudden rush for iodized salt won’t help though, according to NPR.

What will help is just looking at the Japanese from Northern Japan and marveling at their stoic fellow feeling and optimism despite unthinkable events like earthquake, tsunami  and  radioactive leaks.Truly an inspiration for everyone of us.

About StratoServe.

AT&T and T-Mobile need to fix customer service and help US economic growth

The  prospects of a merged AT&T and T-Mobile into one massive organization raise some real challenges. Customers feel worried (March 2011) that with such market dominance , it is likely that prices will not come down and service might actually worsen.

The technical part of  merging the  transmission towers at the back end of the wireless supply chain or the handsets,retail outlets of the two organizations are least of the problems. 

A  difficult task will be to communicate   the  combined plans and avoid billing surprises with customers. Customers can get used to paying less for poor wireless signal but the inability of customer service to address customer concerns is hard to deal with. And that is likely to become huge as the approval for the merger gets under way. Here is some data from the Customer Service Scoreboard website:

A bigger strategic issue for the wireless industry in the US is  that it is rather slow  compared to India and other growth markets where:

  • Incoming calls are free
  • International, long distance  and roaming is inexpensive
  • Data cards/plans  are also very affordable

The US wireless industry needs to see itself as an engine of growth and innovation for the US economy and when global roaming is about  $2/ minute – you can be sure  that conversations and negotiations are shorter from the US side. That’s opportunity lost for US businesses.

About StratoServe.

Supply chain bottleneck for world auto as every car uses some Japanese electronics

The world auto supply chain  has become so integrated (March 18, 2011) that you are likely to find the same parts suppliers supplying to all  auto plants. There was a time when Ford would frown at suppliers supplying to GM let alone Toyota. Today the world is a far different place , with suppliers supplying to everyone in their industry. In fact , you can be sure that suppliers who recently started supplying to the rejuvenated GM had to provide good references from other customers like Ford and Toyota.

[Note: This post from March 18,2011 was updated for formatting issues on May 22, 2021]

The Japanese earthquake crisis now reveals that  GM has to shut down plants in Europe and many more plants are likely to shut down across the auto industry. In the US, there are employment concerns with these possible shutdowns. Critical electronic parts, particularly in dashboards are supplied from Japan as this video suggests.  In addition, the entirely Japanese made hybrid Prius is likely to be in short supply.

The Japanese auto electronics industry clearly is able to compete worldwide, on both cost and quality for auto companies,  and good margins for the Japanese ancillary industry- who fly these parts to different auto plants.

Will the auto industry worldwide generally wait for parts supplies to resume from Japan? Generally yes, I would think because there is just too much knowledge and know-how involved to start making these parts at short notice.

That the  high cost Japanese auto electronics industry is able to sustain as a supplier to the world is sort of inspiring for all types of businesses in high cost locations.

About StratoServe

Innovation and Opportunity Consulting offer for New Haven-Hartford Businesses

 
Subroto Roy-LinkedIn Stratoserve LLC  is offering innovation and opportunity consulting to support scholarships at the College of Business, University of New Haven through BiddingForGood. Stratoserve LLC is founded by Dr. Subroto Roy, Associate Professor of Marketing at the College of Business,  University of New Haven  and currently  a Visiting Scholar at  the School of Management, Yale University.

Dr. Roy is an expert on Innovation,B2B Marketing and Supply Chains and will help your organization to identify  opportunities based on your current B2B Marketing and Supply Chain. This package will deliver innovative solutions to reduce costs and increase efficiency for your business by expert analysis on your upstream supply chain and downstream marketing channel. Dr. Roy  will  also explore radical product/service innovation ideas that can generate new lines of business for you. Dr. Roy will spend time with your designated head of Marketing & Sales,Supply Chain and Operation/Production to understand the obstacles your company is facing today and devise steps moving forward to be implemented by your organization for tomorrow.

The innovative solutions will be derived from  research conducted from data and information gathered during the consulting sessions based  on over 15 years of cutting edge research  to culminate with a presentation to the leaders of your organization.

About StratoServe.

Innovation needs a “challenge vs. threat” organization culture

Today (March 16, 2011) Karim Kassam (then of Carnegie Mellon University and in 2021 at Jacksonville Jaguars) talked  about challenge vs threat  and measuring stress in the lab through blood pressure , heart rate etc. at  the Yale SOM -Behavioral Marketing -Eli Seminar Series.  This got me thinking about the organizational culture you need to allow innovation. But first let’s differentiate between what we see as a challenge vs. threat.

[Note: This post from March 16, 2011 was updated and reformatted on May 31, 2021]

When is something a challenge  and when does  it become a threat? As this article mentions and Kassam clarified :

  • It’s a challenge if you feel that you have the resources and its only a question of “stretching” your effort,time etc. to the task  at  hand. Challenges are great because there are good chances of success and at both the individual and group level positive stress or eustress works to the advantage of  the mission.  Resources here could be money,materials but is that other magic ingredient which innovative companies are able to come up with. These include, a non-judgemental supporting culture where risk taking at the personal/group level is actively encouraged. You are allowed to fail at least a few times without being ridiculed or fired.
  • It’s a threat   when you don’t have  funding or materials but above all when you feel that the organization pulls   you down particularly if things don’t work out  a bit like the crab story. So people take “safe” bets, get only minor improvements while  real innovation remains elusive.

So it’s not only financial resources  that makes one organization more innovative than another. It is the organization’s  ability to frame  most problems as opportunities  that are seen  as challenges than threats by the internal folks.

About Stratoserve.

Future of nuclear energy and the heroes of Fukushima

The world waits anxiously watching the nuclear leak (March 2011) play out in Japan. As earlier mentioned, when it comes to implementing any technology the Japanese do a great job. So if the Japanese are having problems with this- it must be fundamentally problematic goes the logic not only in the US but also countries like India. Coupled with this is the legendary dedication of the Japanese worker. TQM folklore has it that in the auto industry, a worker walking home was likely to straighten the wipers in cars on the street that had stopped mid-windshield ! This same dedicated worker is risking his life  and being  called the “Heroes of Fukushima.“

There are risks with every technology, but “nothing ventured is nothing gained”. Let us cheer and pray for the fifty heroes of Fukushima, because their success will influence the world’s opinion and confidence  about the future of nuclear energy.

About StratoServe.

US pharma imports 80% of active ingredients: Heparin contamination from supply chain

The CBS 60 minutes story  by Dr. Sanjay Gupta had my attention when it mentioned  the Heparin  case  and FDA Commissioner Margaret Hamburg admitted that  80% of active ingredients  in US Pharma production are imported from countries like China,India and others. For three years the Heparin contamination matter is unresolved as the US-FDA and their understaffed Chinese counterparts try to track down the active ingredient suppliers. The House Energy and Commerce Committee  is currently investigating.

It appears, that the contamination in the active ingredient was a cost cutting measure by the Chinese supplier. The  ingredient must have passed the quality inspection, but guess what ?  The adulteration is all about passing the inspection test  with toxic substitutes  and a total disregard for patient problems down the line.

Let’s think about this a little bit. The US Pharma industry is importing an incredible 80% of the active ingredients.  The active ingredient is the chemical that is the one that does the treatment. If you remove the active ingredient, the drug should have no effect but here when the active ingredient is adulterated with a cheaper toxic substitute  that passes lab tests, the patient is in very serious trouble.

Pharma company supply chain and finance managers   feel great  at the savings in imports, little realizing the ground realities in the foreign country. The exporter to the US is only trying to compete without ethics, and is able to evade the local lax regulatory regime and slow legal process. So what is the solution?

A two pronged approach is necessary. If possible – source the active ingredients in the US at least for life saving medicines. It’s good for the economy and well – for US public health!

Where active ingredients are imported just inspection of the foreign plant is not enough and neither is the  receiving inspection test. It is probably important to  have a formulated product test in place for imports. Wonder if all these checks will still make imports competitive ?

About StratoServe.