Netflix and the Long Tail….

I was teaching my MBA students about New Service Development and had some trouble with the DVD player when I tried to show a film about Netflix…. so I happened to look for "Netflix Business Model" in case there were any relevant videos on YouTube. The You Tube stuff did not look like the informational stuff I wanted to show. We got my Netflix video to work with the help of a student’s computer, and I got home after a rather long day and happened to just look at the search result from YouTube.

The title of "Long Tail …. " had jogged my memory but watch the video here.

Chris Anderson offers the idea that the digital age provides unlimited distribution possibilities with digital supplies or a combination of digital and physical distribution. Consider the point that movies don’t reach the movie theaters because there are constraints on movie theater distribution capacity. Netflix extends the number of movies that are available. Similarly for music with Walmart at 25,000 tracks with iTunes at 2 Million tracks and probably a total of 25 million tracks out there that’ll come online , according to Anderson. Also similar logic for brick and mortar bookstores when compared to Amazon.This long tail involves many many micro market segments that were difficult to approach before the Internet and the "Flat World." So in contrast to the 80:20 rule Chris Anderson suggests that the long tail will make many many more markets viable for products and ideas that never had a chance due to capacity contraints in the physical world. Consider, that you are seeing this idea right now on this blog before you read my more detailed take in scholarly print (which might take years !) on Chris Anderson’s rather neat idea.…

LOL -Limitation of Liability-with Jim Bergman

Jim_bergman_2The talk by Jim Bergman on Tuesday at CAPM turned out to be great. Jim gave folks a heads up on IACCM  and the real need for the buy-sell and legal side of companies to speak to each other instead of remaining in their silos.Organizations tend to, for example, not really understand their customer warranty requirements and then seek similar warranty requirements from suppliers. Instead, marketing and sales gives out warranties to customers without Procurement and Supply managers trying to transfer the risk upstream. For example, a supplier might offer a 2 year warranty as standard and procurement managers accept this as a bonus  without working for a lower price since their onward customer warranty might be just one year and they are needlessly paying for warranty that is neither needed nor ever used.

The fun part of Jim’s presentation was the acronym LOL which you might think is "Laughing out Loud." Not so. LOL is "Limitation of Liability" and it is the most negotiated clause in buyer seller negotiations according to IACCM suveys, year after year. I felt that the audience was both energized and intrigued by this finding particularly because no one could disagree, nor like to admit it! All in all a very nice event as was the venue the il Monteicello restaurant.

From supply chain to “global value chain” a report from NECON 2007

I returned from NECON 2007 and was struck by a major change in the supply profession from 2006. In three  words "global value chain," in contrast to the narrower "savings" theme of the previous year.

While in 2006 there was some talk about managing the global supply organization and global suppliers – this time I found a distinct shift in the way speakers addressed these two issues. Large corporations like Pfizer are clearly thinking globally for both managing the supply organization and suppliers. The ISM Chair Lisa Martin’s talk was just superb and covered the global value chain imperative succinctly.

Stephen Slade’s  talk explained how software today can help with making the entire value chain more visible across global operations.Similarly the panel discussion on outsourcing clinical trials had a star panel of both buy and supply side experts and the panel brought out the complexities of the global contract research process.

I was motivated by all the exciting sessions to add slides to talk some more about the "low cost country" aspects rather than only focus only on the difference between business processes and knowledge processes. I too emphasized the "value" chain perspective in the context of low-cost country sourcing.

Overall, a great conference !

Outsourcing call centers – an ethics question?

I recently bought a Dell computer and during the buy process I needed to call and it was a US salesperson. In fact, the Dell website was very careful in guiding US customers in the early part of the buy process to US persons, or at least US numbers.

You guessed it ! The person who spoke with me was outstanding but did have a foreign accent and did not grow-up in the US.

So I found Bruce Weinstein’s recent article on ethics, noble but out of touch with how things really work in this industry. Yes it is ethical and good business sense to give top customer service to customers so that they come back for more. But the assumption that a US worker will be more service oriented is wrong. The fact is that a decent US worker does not want to work these jobs even if the pay is higher because these are taxing jobs also called the "McDonald jobs" of the service sector. You can pay maybe 12 -20$ an hour compared to about $ 2 an hour in India but the motivation and attitude of the "dead end"  call center worker in the US is just appalling. Just go to an US call center and compare with an Indian one in the dead of night. Check my 2006 post here.

The point is that the Call Center industry is very highly developed and is geared to addressing customer issues depending on the phase of the sales or service process. For tech support Call Centers are paid differently for different levels of support ( Level 1 vs level 2).  The cultural training is also enormous as I have seen, although gaps do exist.

Thus the ethics question that Weinstein raises is really one of efficiency and industry is always trying to improve.  For example you are unlikely to find lead paint in Chinese toys in the future but Chinese toys will be back and US manufacturing will continue declining for purely cost reasons. But America and Americans are innovative and I think overall the world will be better off. I got this previous line’s idea from Brink Lindsey’s great book that I am currently reading called "The Age of Abundance." More on that later….

Crib Recall – New Product Development meets Supplier Involvement

Recalled_crib_from_cpscWalk into any furniture store in the US and almost all products are
made in China. You order anything and the boxes arrive with
instructions and you do as best as you can. I , for example, have a
desk with a hutch that I could not install very well and just did not
want to spend money on a professional installer and a rattling hutch is not a problem. But what happens if it is a crib
or a rocking chair for the elderly? Serious injury or even death can
result.

The recall of one million, yes one million cribs puts the focus on New Product Development and Early Supplier Involvement and the core of this blog i.e. Business to Business Relationships. According to the Chicago Tribune , 3 deaths , 7 entrapments and 55 incidents are reported where tiny infants are involved.

Apparently, the cause of the problem, is that customers might install the drop side of the crib upside down. This is because the design fault allows such an installation.
Once wrongly installed, the hardware can weaken and can allow the drop side to detach. The gap so created in the crib could entrap the infant.

Was adequate product "in-use" testing done before launch of this product? Obviously not – because design flaws would come up straight away if even simple consumer product  tests were conducted before large scale market launch. For example, if you tried a testing with a large demographic of good and bad handyman Dads with infants almost certainly the wrong way installation of the drop side of the crib would have come up. Then obviously the designers could have eliminated the wrong side installation possibility. Such research would have cost a paltry amount and would save infant lives not to speak of the the organizations involved including Simplicity and its Chinese suppliers.

And if you ask the supplier, they’ll tell you that they work off the drawing and the drawing is part of the contract. And off course the supplier has absolutely no idea,interest or concern about the product’s actual in-home use  in classic B-to-B style. Also partly because the marketing company keeps the suppliers completely guessing about what’s happening in the consumer market. Nothing wrong with that because the crib company has probably many suppliers and would not like to discuss too many market issues lest the suppliers become competitors at the consumer end.

But then could the crib maker have ordered a 100 samples for a consumer "in-home" product test – with no reference to the actual market?  The Chinese suppliers would have supplied them free!  But it was probably from the drawing board to the overseas manufacturer and then direct to consumer. Pretty neat and virtual as a new product process , with very messy and real consequences. 

NECON 2007 my Knowledge Based Services – Low Cost Country Sourcing talk

Relayrace110
The NECON Conference is a great event and will be
will be inaugurated   by Massachusetts Attorney General Martha Coakley  with a whole lot of great speakers. NECON is a collaborative initiative of  the Boston and North Shore Chapter of APICS ,The Council of Supply Chain Management Professionals, the CSCMP New England Roundtable, the NE Supply Management Group  and The Purchasing Management Association,Boston.Richard G. Weissman’s blog on Purchasing.com has started the buzz for the event that is between September 30 to October 2, 2007 in Marlborough, Massachusetts.

My own talk is on Tuesday afternoon and an abstract appears here. I am  working on delivering a really useful and enjoyable workshop!

Apple iPod early adopters receive iPology

Less than two months ago this blog discussed the spectacular iPhone launch. Today the early adopters who had signed up for the $599 iPhone are furious. Apple decided to reduce the price to $299 to enhance adoption by mainstream consumers, in time for the holiday season. According to Steve Jobs the price cut will make the iPhone more affordable.

Understandably, the price cut has left the original early adopters of the iPhone, angry. Naturally, if you stood in line for hours and forked up $2000 for the yearly contract and then realized that the marketer had cut prices by 33% in less than 60 days – you’d feel shortchanged.

Luckily, Steve Jobs and Apple have responded and are giving a $100 credit. What was Apple thinking? Early adopters are crucial for any market and more so for the revolutionary products like the iPhone. Early adopters are those who are recognized as folks who "are first to try something new" and "order a new dish or go to new restaurants" and generally take the risks and kinks that come with being the first to try something new. Most consumers just wait it out till things stabilize and some (the laggards) do not adopt the innovation at all. Without early adopters there would be no innovation which could really reach the market. I am glad that Apple realized it’s folly and Apple enthusiasts are happy again. The iPology worked ! Classic service recovery by Apple on this one.

Dell available in Wal Mart – end of pure online business models?

Dellwalmart_2
Ever since I saw some Dell computers in my local Wal-Mart, I have been well, shocked! Shocked because like so many others, I have believed that Dell had a unique end to end supply chain that linked its customer preferences directly to its supply chain partners through a very visible and transparent global supply chain . In fact, it is for over 10 years that Dell has been following a direct marketing model and I remember ordering a laptop in 1997 online from Singapore that was delivered from the Malaysian Dell factory. It had a DVD player and I was pleased as a peach when the ordering system told me that the supplier (I think Toshiba) had a backlog and there might be a slight delay. In other words, each component you ordered became visible to an upstream supply chain partner who moved into motion. Dell transfered my warranty to the US and actually replaced some components that were not working within the extended warranty in 2000 in the US. Well that was Dell- providing global customer service in the year 2000.

So what’s changed in 2007? Over the years I think the computer industry has become commoditized. For example,  it’s just not worthwhile  for  the hardware geek to put  together a  machine from components. The costs simply do not add up today against the bulk-component buy power of big players like HP. In addition, computer makers like HP,Compaq,Acer,IBM (now Lenovo) allow things like memory to be easily upgraded as they use more modular memory configurations. These big traditional retail channel players have reaped the benefit of lower component prices without bothering to build any huge proprietary advantage in what has turned out to be a commodity market.  Dell instead, has tried to follow a more proprietary model with expensive memory upgrades. Most importantly, there is a large population that wants to buy a computer but cannot handle the Dell buy process because it is rather overwhelming for someone not used to online buying. That population is over 50% in the US and that’s a really large market and where does that market go to shop? Wal-Mart- you bet !

On the supply chain side, for the Wal-Mart segment Dell will have to reduce the assortment simply because now you have finished goods inventory sitting at various parts of Wal-Mart unlike the last minute assembly by FedEx/UPS in the direct model. But that should not be too difficult given the extreme competence Wal-Mart has in figuring out what works for middle America. So all in all- this should work and mean more market for Dell and Wal-Mart. But it does  reduce the  great charm  that the Dell direct system brought to all discussions of the "pure" end-to-end global supply chain.Is this the end of pure online plays ? Let’s watch Amazon.

Toy recall , tire recall and the supply chain

Tell me frankly- if you have children are you worried about brain damage caused by lead paint from toys ? If you changed a tire recently, did you look for the "Made in" label – discreetly but anxiously.Globalization is really catching up with everyone and I feel bad for the supply chain managers at Mattel and Fisher and Price and their marketing folks and Chinese suppliers.

I can’t believe that the toy specifications did not have a "no lead paint" clause in early versions. What must have happened is that marketing must have gone on pressurizing for lower costs and the supply chain managers, being less influential than marketing in organizations, must have passed on the cost pressures to the supplier who in turn passed it on to their Tier 2 paint supplier. Thus, according to CNN, one toy supplier committed suicide while the paint supplier who was in the same compound has gone missing. The paint supplier, according to the story was a friend of the toy maker and the visuals showed some of the thousand workers who became  jobless. At the consumer end, people are frantically checking toy boxes and are being advised to get the blood lead content checked for their children, and be worried only if the lead content is high. There is talk of  medical monitoring  and a fund to meet the costs of all these testings. What a mess!

For supply chain managers to have instituted lead paint checks in acceptance quality checks is ludicrous because if you live in the US lead paint is so obviously a "no-no." So why is there such a large disconnect between buyers and sellers ? Obviously because there are tiers of suppliers and everyone on the US side depends on written specifications and controls. On the Chinese side of multiple tiers in a highly context driven culture things like lead paint do not seem like  a big deal. In addition,communication,trust and an ability of suppliers to say no to unreal lower prices and an inability of buyers to understand the ground reality of overseas costs, legal and cultural environments are probably culprits here.

No amount of quality controls, PLM and SRM software, visible supply chains, can overcome this situation. A change of orientation in supplier management is called for.In the meanwhile, this situation will continue to unfold.

India Happy 60th Birthday-why a great global knowledge partner

As I watched Dr. Manmohan Singh, India’s Prime Minister first pay traditional tribute at the RajManmohan_singh_at_raj_ghat
Ghat, the memorial built for Mahatma Gandhi the father of modern India and then unfurl the Indian flag I was struck with a sense of awe. Awe because India has achieved the seemingly impossible, built a democratic open society with a population of over 1 Billion diverse people with multiple differences in languages,religions and culture. I guess Gandhi figured out the moral path in an absolute brilliant fashion. His model was "Ram Rajya" the Hindu ideal kingdom of Lord Rama where the king and Lord Himself is extremely careful about public opinion and carrying people along
with both government and personal actions. By being able to dovetail modern western democratic notions to ancient Indian ones the Mahatma formed the foundation that allowed Dr. Manmohan Singh an Oxford Ph.D. in Economics and a minority Sikh to Gandhi_2
become Prime Minister and be acceptable to a bunch of sometimes difficult coalition partners. Awe because India’s President is a woman Pratibha Patil who replaced Dr. Abdul Kalam a rocket scientist who is  also a muslim. Awed because the President of the ruling Congress Party ( the Mahatma’s party) is an Italian catholic Sonia Gandhi who dresses in a saree and had given up the chance to become Prime Minister, thus striking a chord among India’s masses because this is exactly what the Mahatma would recommend and Lord Rama would approve!

On the ground however, poverty is still widespread and Dr. Singh emphasized that there was no success without ensuring basic living for all. He talked about healthcare and pensions for the 65 plus who are below the poverty line. Dr. Singh referred to the need for electricity and roads that have become, with drinking water, the top priority for Indian democracy in contrast to the more basic food,clothing shelter theme of  the eighties. Dr. Singh  was silent  about controlling corruption  but then the multiple newspapers and media have a great time  doing "sting" operations to catch politicians and officials  on the wrong foot as does the vibrant Bollywood film industry.

I wonder whether it  is just the sixty years or the ability to dovetail traditional democratic values, that makes democracy work in a relatively poor and populous country. In any event , democracy does work and Dr. Singh announced opening up of many more schools and Universities to thunderous applause. The goal was to eventually provide opportunities for low cost college education to 20%  of the people. Just being able to read and write was not enough according to Dr. Singh, people needed to do better on the knowledge front to be able to contribute to the new global order.

Iday60th
So what has this got to do with India being a great global knowledge partner? Simply this : that an open democratic society allows other global partners to know what is going on with minimal effort.
For example,  a few emails or well placed skype calls might get you a fast "on the ground" view from an Indian partner’s friends and enemies! The picture may not be always pretty but at least you get the picture – not something you can say for partners in other countries with more closed political systems.