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All Roads Lead Back to People

December 30th, 2019

All roads lead back to people. In working with executives from diverse industries of aerospace, building products, healthcare and food & beverage, whether a $10 million dollar family-owned business, a $50 million dollar private-equity backed company or a multi-billion dollar global conglomerate, the most successful have the best people. Little else seems to matter. The best strategies are destroyed by poor leaders, and the most mediocre of plans are wildly successful with the right leaders.

Since many of our clients are manufacturers, and October is manufacturing month, we thought it would be the ideal time to remind you that “all roads go back to leaders”. As much as it is relevant to stay on top of the latest technologies (learn more about artificial intelligence and computer vision in our “Just for Clients Section”) and search for the best practices for your business (such as SIOP (sales, inventory, operations planning) and lean manufacturing), it is even more important to think about your people. In fact, if you have the ‘right’ people, the rest will fall into place.

When thinking about people, you should consider several important groups:

  • New hires – Spend more time ensuring you have the ‘right’ person before wasting time and energy on a non-performer! Stop thinking about job descriptions and tasks.  Instead, think about what results you need and whether the person you are interviewing can ‘turn them into a reality’.
  • Your employeesThe most important category is your employees. If your people aren’t involved and interested, how do you expect to create fans of your customers?
  • Your suppliers – Do you consider your suppliers an extension of your team? You should! They can make or break your success.
  • Your customers – Certainly, there is such a thing as choosing the ‘wrong’ customer. Are you just taking any customer that comes your way or are you making sure they are a good fit for your business? Some customers will take you to new heights and others will send you accelerating backwards.
  • Your trusted advisors – Pay attention to who you listen to! Bad advice is far worse than no advice at all. As trusted advisors, we can attest that when our clients find ‘inexpensive advice’.  They come running to us because they tied up people getting nothing accomplished, or worse, the situation has gotten worse! In addition, having the ‘right’ banking, financial and legal advice at the ‘right’ time can prove invaluable.
  • Your trade & professional organizations, alumni groups etc. – The story is very similar to trusted advisors. You can gain invaluable insight and resources if you consider your network an important aspect of your business.

Watch our interview with  Ismael Reyes, Jr. and Cindy Baughman of Ingram Micro, the Manufacturing Council of the Inland Empire’s Innovation Award winners. We talk about the relevance and importance of talent and leadership as well as the dramatic impact it can have on bottom line results. They achieved over a million dollars in savings in process improvements.  And, they consider the key to success to go back to people.

Are you interested in bottom line improvement AND/or developing a superior customer experience? If so, start with your people!

If you are interested in an assessment of how you stand vs. the industry norm and would like recommendations and priorities to drive results, read through our articles for ideas or contact us to discuss further.



The Tranquility of Ha Long Bay

December 26th, 2019

While in Vietnam, I thought it made sense to see the World Heritage site nearby. So, I took a day tour of Ha Long Bay in north Vietnam. It is known for lush emerald and turquoise waters in the Gulf of Tonkin. You feel the tranquility. Have you thought about how to insert a bit of tranquility into the chaos?

 

One Tip to Implement This Week:

In the midst of Hanoi, it would seem as far as you can get from the tranquility of Ha Long Bay. Scooters are everywhere. Horns are honking. Traffic lights are nearly non-existent. Everyone is on their own.  You just have to step across the street regardless of what is coming. Yet somehow there seems to be organization amidst the chaos. On the other hand, aside from being crowded with tourists, Ha Long Bay is the opposite with absolute tranquility. Purposefully inserting tranquility into your crazy routine can spur new ideas and reorient your thinking.

Since I was in Vietnam, this seemed like a good option. What can you do to achieve this same type of impact? Should you get away for lunch? Take a walk on a break? Go on a mini retreat to re-think your strategy? Or simply take the train and read a book instead of fighting traffic in your car? It doesn’t matter what you do. Simply think about what works for you and follow that path to keep your mind fresh and to stimulate new ideas.

 

 

 

 

 

 

 

 

 

 



Is Vietnam the New China?

December 23rd, 2019

Possibly, and “it depends”! China has been moving factories to Vietnam since the early 2000’s, so it is certainly a place to consider. With the tariffs, global uncertainty, rising wages in China and social/political implications, Vietnam can provide a viable alternative especially for certain industries. Vietnam has lower wages, multiple ports, is friendly and has a growing and advancing manufacturing base. Of course, there are always challenges to navigate as well such as a lesser developed infrastructure and less high skilled resources available. The bottom line is that you should at least have Vietnam on your radar.

Some of our clients are sourcing from Vietnam in addition to other countries including China, Mexico and N.A. Similar to China, there is a stark difference between those with money and those working diligently to get by. The picture of the nice looking building is part of the Sofitel Legend Metropole is a fabulous hotel (and happens to be where Donald Trump & Kim Jung-un met), and the other picture is one of Hanoi’s city streets. The vast majority of people cannot afford a car (which is quite expensive in Vietnam, $25,000 for the smallest hatchback) , so there are motorbikes all over the place, driving in seemingly organized chaos. In comparison to China’s wages of $27.50 per day, wages in Vietnam are $6.70 per day. Yes, a stark difference for labor-intensive industries. While Vietnam may not be right for everyone, you should at least be aware of what the country has to offer in terms of sourcing opportunities.

What Should We Consider and/or What Impacts Could Arise?
Countless numbers of organizations outsourced to China 20 years ago.  Many have discovered it wasn’t the smartest decision. Perhaps labor intensity wasn’t high. Perhaps lead time requirements were quick and critical. Perhaps product was delayed at ports or the risks associated with the South China Sea are too great. Perhaps it never came out much ahead when looking at the total cost or perhaps it has evolved to more of a parity. In non-labor intensive industries, I’ve heard several executives re-think the decision. At larger companies with global business, they reoriented the China facilities to supply the Asian markets. In smaller companies, they were stuck for a period of time because they invested heavily including in capital intensive machinery and equipment. And in some cases, it was a brilliant decision.

Whether you have outsourced to China, Vietnam or anywhere else is not relevant. The key question to think about is the impact your decisions have on your customer, your skills requirements, your cost structure, your risk profile and more. So long as you are going into these decisions with your eyes wide open, you’ll be successful.

Perhaps you should also be thinking about backup plans and deliberately creating redundancy and diversifying your manufacturing base. Even if you don’t consider switching part of your base because you aren’t prepared to make this transition successfully, you should at least think about how you are sourcing growth and expansion. Should you build skills close to your customers? If you are in a labor-intensive industry such as apparel and home textiles (which are #1 and #2 in Vietnam), perhaps you should consider Vietnam. And, why not get ahead of the curve? Samsung is producing several phones in Vietnam.  There may be something to be said about being first to the party of using higher-skilled talent.

At a minimum, re-evaluate your end-to-end supply chain in order to future-proof your manufacturing operations and related supply chain components. Check out our new LMA-i, LMA-Intelligence series including Future-Proofing and contact us if you’d like an assessment path-forward plan to accelerate your bottom line and customer performance.



Have You Thought About Whether You are Maximizing the Use of Your ERP System?

December 19th, 2019

Before jumping to conclusions and pursuing a system upgrade, should we explore whether we are maximizing the use of our current system? Or, is it just not modern enough to support our growth in a scalable, profitable way?

This is often the subject of a client call. After all, no one in their right mind would want to embark on an ERP upgrade unless absolutely necessary. The issue is that the situation can be quite complex. How do we separate what’s important vs. what’s not? In this case study, a client knew they had to upgrade because their system was long out of maintenance. The only question was how compelling was the upgrade to support their customers’ requirements and an efficient operation?

The Answer
Although they clearly required an upgrade to get into the current century, the question we explored is whether they could continue to improve performance using their current system to a degree large enough to delay the upgrade until they were better prepared. Unfortunately, since they had let their current system go for ‘too long’, it was highly dependent on current technical resources, partly tailored to their business processes and customized to their needs. At first glance, that doesn’t sound bad! However, the issue was that it was by no means scalable, would require significant education on concepts so that folks started thinking instead of following the process designed into the current system and they were highly dependent on resources that could leave or “get hit by a bus”. Doesn’t that sound like something you say but it doesn’t happen? Not so> One of my clients had that exact situation occur, even though it is just a phrase for a myriad of issues that could arise.

After digging into their business requirements (current as well as a few years into the future), we found ample opportunity to further leverage already existing functionality to meet customer requirements and delay the upgrade for several months. However, that still wasn’t enough. We also had to take actions to secure at-risk critical resources to the degree feasible (since we clearly cannot plan 100% for the ‘hit by the bus’ scenario). We were successful in proactively addressing the situation so that we didn’t have to leap before we knew if we had a net. Yet, we weren’t 100% comfortable, so we also put together an aggressive plan for ERP selection to find the best fit system to meet their needs (without customizing) and equally important a best fit partner that could proactively understand and think through their education needs (which were VERY different from training needs).

Food For Thought
Although we found a solution, the CEO was on pins and needles once he realized the extent of the situation. Don’t leave your infrastructure to chance. Even though all can seem quite fine at the high level, it is important to know whether you are being held up by a solid foundation or a nice-looking pile of straw. That is before considering what you’ll need at least 18 months into the future. You will not select the best system to support your plans or you’ll skimp on implementation. Every client that cut corners overspent by 20-100% and that is before considering the impact on customer service. Do you have a scalable ERP system to support your business growth and profitability? If not, start there!

 

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Forget About Reducing Inventory; Perhaps You Have the Wrong Supply Chain Strategy

December 16th, 2019

Clients and colleagues have demonstrated a heightened interest in inventory reduction recently despite not yet seeing the full value! Certainly with everyone worried about a potential recession in 2020, they are starting to think about not tying up as much cash in inventory but that is not the 100 pound gorilla. The real question is why we are thinking about corporate mandates and full warehouses instead of seeing the bigger picture – reevaluating our supply chain.

Of course, maximizing your customer service (on-time delivery, quicker lead times), margins/efficiencies and cash flow (inventory reduction) is an important standard best practice. To learn more about how to achieve this win-win-win, read our recent article ” Inventory Management as Fashionable as Automated Intelligence for Distributors” for ACHR News. Yet, it could become “rearranging chairs on the titanic” if your supply chain is not set up to deliver maximum performance. So, instead of jumping to erroneous conclusions, take a step back to reevaluate your end-to-end supply chain strategy.

When I was a VP of Operations & Supply Chain for a mid-market manufacturer, our private equity backers and Board of Directors were always asking about labor costs. It didn’t matter that labor costs was our smallest cost element. In fact, material cost was the 800 pound gorilla at around 70% of product cost, followed by freight. If we could double labor cost to reduce materials and freight, it would be a smart decision. Yet, it was never viewed that way. So, if a smart private equity group and executive team can bark up the wrong tree, we all might be speeding down the freeway but going in the wrong direction.

Typically, labor cost is 8-12% of the total cost of ownership. How does that compare to your materials cost? Unless you are in a labor-intensive industry, perhaps you better take a second look. Next there are freight costs. Not only do freight costs continue to rise but the rules, regulations and delays can be astounding. In a recent California Inland Empire District Export Council (CIEDEC) meeting, the new sulfur emission rules for shipping arose because costs will have to be passed on to importers and exporters. Of course, we don’t have to mention tariffs and global unrest. Now, let’s add inventory carrying cost into the equation. It is a minimum of 6%.  Yet, most experts (and clients) agree that it is truly a minimum of 25% and could be as bad as a 1:1 ratio. Just think about how often your customer changes his mind, all the expediting you have to do to serve customers and the systems and complexity your team has to manage. Is it time to reevaluate?

ERP system
Let’s not forget that this equation isn’t just an insource or outsource question. There are lots of opportunities. For example, you might want to think about the following questions:

  1. Where are your customers?
  2. Where are your suppliers?
  3. Is there disruptive technology that could impact your cost ratios?
  4. How complex is your supply chain? Have you thought about the price of complexity?
  5. Do you have a robust ERP system to support customer expectations while achieving profitable growth?
  6. Are there supply chain partner programs that could completely change the game?

No matter your situation, it is worth revisiting. Corporate strategies last NO MORE than a year so why are we leaving our supply chain to old rules? Instead, we should be future-proofing our manufacturing and supply chain business.

Stay tuned and read more about it If you are interested in discussing a supply chain assessment, please contact us.

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