It's Just Like Riding a Bike

March 2, 2022

“It’s just like riding a bike…” Most of us have heard that expression since we were children (if you grew up in the US, but I’m sure there are variations in every language and culture.) The adage was meant to apply the thinking that you’ll never forget how to ride a bike once you learn to another situation. So although this skill or experience may be difficult to learn, once learned you don’t need practice to maintain the skill. Sounds too good to be true, right?

In my mid-20’s I decided to purchase a bike; a shiny, new road bike. The kind with tires the width of a pinky finger and a seat you’d assume was to meant never to be used given its level of discomfort. I hadn’t ridden a bike in many years. My last time would have been when I had ridden my last childhood bike, and that was probably around age 12. For me, the fact you “don’t forget” was true – despite the awkwardness and the fact that this bike was much less stable than the ones I had ridden before, I was up and riding within minutes. The part I had forgotten, or actually never learned in the first place, was how to stop and dismount from a bike like this. So I rode around for a while trying to plan my escape, or dismount – I finally settled on riding onto a grassy hill knowing that would be a better place to fall and that the slope of the hill could potentially help me. All’s well that ends well, but suffice it to say, nowadays I ride a hybrid.

In thinking about the processes that govern your procurement, there may be a similar thought. These processes are “easy,” or you think they should be. But much like my experience above, for those who haven’t “ridden” in a while, or in this case, haven’t actively managed procurement processes – a lot has changed in even the past few years. I hear comments like, “don’t you just use a formula, and it tells you what to buy?” “This is straight-forward, it should be easy.”

Well, I’d say that procurement and its processes are simple – but they are not easy. And that’s why most organizations fail at implementing inventory strategy. With a little bit of effort, you can develop a strategy that works for your organization and is easier (but still not just plain easy) to maintain. Here are a few things to think about as you plan your inventory strategy:

-        Think about your overall commercial strategy, then start to work backward to think about the inventory needs you have. If your strategy is “we just need to have the parts we need when we need them” it needs more thought. A lot more. Any supply chain workstream that doesn’t start with the customer is likely to end up misaligned with your commercial strategy and customer needs and lead to the type of failures that get most companies to focus on inventory in the first place, e.g. too much that you don’t need, not enough of what you do need.

-        Look at how your parts are grouped – the traditional ABC segmentation (based on spend velocity) and then some detail on variation is a great start. But you’ll find each organization is different, and the knowledge of your business will help to segregate parts in a meaningful way. Your ABC may be sliced differently than others because of how your spend is distributed, what is low variation to your company might be high variation to another. Take it a bit further to think of the other logical groupings that may need to be acknowledged. What characteristics make your parts unique in the approach that they need? Whether they are for production vs. aftermarket? Which region they are sourced from? Current market conditions for certain commodities? Etc.

-        Accept reality; as you start to then develop your plan, start where you are – figure out what type of strategies will work with your current state. That means your current supply base, your current lead times, your current talent level, and current bandwidth in procurement, etc. You can’t wait for everything to be perfect to implement a plan to improve.

-        Run the numbers – this is rarely lost on Finance but do the work to see what the proposed changes will do. I mean total inventory value changes, in the short and long term; but also, what it might do to workload in procurement (i.e. quantity of MRP messages at implementation.) Use this to decide how to best work through your implementation. There are ways to do this quickly with little interruption; and there are ways to drive it over time to allow it to work through the system organically but without overwhelming your team.

-        Then plan the future state that’s right for your business – above I told you to accept your current reality, now it’s time to plan the future state you want and detail how you will get there. What improvements could greatly improve your ability to serve your customers and meet your working capital goals: better lead times, better pricing (through more thoughtful purchases or sourcing projects,) better suppliers (which ones need development, which ones need to be rationalized,) better processes, better technology, better talent, etc. The list goes on and on. As with any process, it’s never truly done. In the spirit of continuous improvement, no process is ever finished, it just exists in its best current state.

As interest rates rise, concern over the economic outlook remains somewhere between unclear and gloomy, and shareholders (be they public or private) become immune to hearing that COVID is the excuse for all supply chain related problems (seriously, how has that not happened already,) more and more companies are focusing on inventory. With annual carrying costs as high as 25 to 30% and a definite value to freeing working capital (let’s assume its 5% given the current market) that means that $100K in excess inventory could be worth $35K in value if you were able to free it. It doesn’t take very long to see the value in finding ways to right-size your inventory – and that’s just the value of the costs directly tied to inventory; when you start to think of the increased availability to your customers and what that can mean for revenue and margin, savings on expedited freight, reduced overtime, and on, and on you quickly see that you’re looking at an issue that isn’t in the “should do” column, it is a “must do.”

It may be time to focus on your inventory strategy. But look at it with fresh eyes and don’t rely on the hope that what worked before, or the skills your team once had, will work now. As your business evolves, as your customer base grows and changes, as market conditions ebb and flow, the strategies that support your business should too. The bike analogy doesn’t work here, a better one might be golf. Ask anyone who has played and then stopped for a while – it is NOT like riding a bike.

And now, for my next trick…

December 12, 2022

As a kid, I loved magic. I can hear you saying, “all kids love magic.” No, I really loved it. I think I loved the idea of it more than anything as I never really got good at any tricks. I can still remember how amazed I was when David Copperfield made the Statue of Liberty disappear. A couple years later, I got to see him on a tour I have an awkward photo of me with David – him sitting in a folding chair on top of folding table in the lobby of a civic center, me staring up him and not hearing the call to “turn around” so more than the back of my head would be in this poorly lit photo. It is meme-worthy in its awkwardness. But I digress.

As we come to the end of the calendar year (and for most companies the fiscal year too) I’m reminded of years past when companies try to make a number for year end. I believe most things are done in good faith and are driven by the fact that public companies live and die by the quarter. I don’t think the thought of, “things are bad, what can we do to make them worse?” really comes up in board rooms but the outcomes of many of these end-of-year “financial magic tricks” have bad consequences. And now, sit back, relax, prepare to be amazed and enjoy the show! And in the style of Penn & Teller, I plan to break the magicians code and tell you how the tricks are done.

My first trick is <insert great, suspense-building music>: I make inventory disappear! We need to make it look like we are a lean organization and that we have great inventory turns. We don’t have a time machine or any capex budget left for one so we can’t go back in time and put in an effective inventory strategy. So instead, Abracadabra! “Don’t order anything we don’t have to have before December 28th” or “just put everything we need for Jan. 1 onward to be delivered on Jan. 2. All of it? Yes, all of it.”

So what’s wrong with that? Organizations that really embrace lean would tell you that stopping material flow to hit a number is the exact opposite of lean. Beyond that, every company should know that this is extremely risky – even more so in the environment we operate in today. Suppliers may have to do some of the same magic tricks; which probably doesn’t include making everything you need for the next 2 months of production and holding it on their books at the close of the year; especially since you pushed them to net 75 payment terms and 30% of your open invoices are past due (more on that in the next paragraph.) The end of the year can be problematic for transportation; you should be ready to deal with at least a 1 – 2 day delay on any shipment.

For my next feat, I will perform the old accounts payable trick – I extend payment terms with the flick of a wand, no need to review contractual agreements! This is common with many publicly traded companies – hold payment at the end of the year, the 2nd trick in the working capital metrics bag. We have all heard the reasoning. “Everyone does it, people expect it,” “an extra 15 to 30 days shouldn’t mean that much, if it does, they’ve got bigger problems.” Both of those have a bit of truth in them, but in the past 5 to 10 years large companies have pushed payment terms further and further.  I’ve seen net 120 as a standard in some cases. I get the math; I understand the reasoning – but do you really believe that you get the same level of response as a customer with net 60 or net 45? You’re kidding yourself if you do. Even with large companies their suppliers are often small to mid-size businesses.  They must front the cash for your balance sheet magic. And yes, they value you because you’re a big customer.  But when they have to borrow money to pay their workers because late payments from so many customers strapped them for cash don’t doubt that’s in the next quote. If they need a new machine to keep up with your growth don’t be surprised if they are actually pushing your orders out while taking more favorable cash flow orders in the near-term to be able to buy that equipment. We all understand the time value of money – for some reason, like the ostrich with its head in the ground, we don’t think anyone else does.

For my next trick I will increase accounts receivable dramatically! I am going to structure my pricing so that my customers feel that they must buy things they don’t need at the end of the year so that they can keep their discount level next year. I will burn through margin as I pay overtime to workers who are already trying to take their vacation at the end of the year. I will spend extra money to expedite materials during an already tight logistics season to make these products my customers don’t want so that I can invoice before December 31st. I will not discuss any of this during forecast or Sales & Operations Planning meetings – why spoil the surprise?

And now, the finale of our show – I will use my amazing powers of hypnosis to make you forget what you’ve seen. In my crystal ball I can see it very clearly… it is January 2nd. Everyone is back in the office and pretending they don’t want the cookies that suppliers sent that the purchasing team keeps putting in the break room (but they do and will all come back at 9:03 to get cookies when they think no one will see them.) Everyone is surprised and wonders: why are we out of stock on key items? How is my absorption so good yet my margins are behind target? When the earnings call comes, should I put “supply chain issues” on the white board to point to when analysts ask how we could have exceeded our revenue numbers and missed our margin targets? Never fear, the knowledge of who caused the supply chain issues will be a distant memory; they certainly won’t seem self-inflicted. Just look at the excess inventory to your right and the cells with no work to your left… good.  And again. And when I count to 3, you’ll remember none of this and start work on the 42 page report explaining the margin miss… 1, 2, 3…

I know life and business are rarely ‘easy.’ But as you come to the end of the year, take some time to make sure you are focusing on doing the right things for the right reasons.  And if you do have to do some magic – be sure to communicate it well with your internal team, and hopefully with some suppliers to so they can be prepared.

Happy Holidays to you and yours!  Enjoy the season and those cookies that you “don’t want.”

Cultural Considerations in All Aspects of Supply Chain Management

October 21, 2022

I was recently asked to do a presentation for a group of business students at a university in Singapore on the topic of US Supply Chains and what makes them unique. In thinking about what to include based on the limited time and decided on a few major topics:

-          The physical size of the country (I find that almost all people who have not spent much/any time in the United States are surprised at just how large it is) and what that means for logistics.

-          Major exports & imports, largest trading partners and the trade imbalance.

-          Some major issues affecting supply chain in the US (that may not be true for the rest of the world) such as:

o   the lack of trade/skilled labor training and what that has done to our aging skilled workforce

o   the insecurity due to critical manufacturing capabilities that have been outsourced to such a large percentage: think semiconductors, large scale batteries, etc.  The good news here was that I was able to share the recent actions taken to drive investment in these areas.

But what I decided to start with was the differences in the general culture, and how that can affect business relationships and decisions.

When it comes to cultural considerations in business, I think there is a decent amount of effort put in when international travel is taking place – making sure you know a few phrases, know what’s appropriate for greetings, how to behave at dinner… the basics.  Most people will say they do it for negotiations, but I rarely see it in action.  With that in mind, it is not surprising that people don’t think through what cultural implications there are to their relationships in general – with fellow employees, customers, suppliers, with foreign agents, etc.  But we should – out of respect for other individual’s culture and to make our relationships stronger and more valuable for our business.

Gerard Hofstede, a Dutch social psychologist and former IBM employee, is regarded as the father of the study of cross-cultural working groups and developed the popular framework for measuring the 6 Cultural Dimensions so you can see how cultures vary.  The 6 dimensions are: Power Distance, Individualism, Uncertainty Avoidance, Masculinity, Long Term Orientation, and Indulgence vs. Restraint.

I’ll spare the detail, you can read more on the institute’s website, and you can also do your own comparison for various countries to see how they compare.  I think you’ll find some surprising differences.

My first swing was closest to home for me, a look at the US – but until you better understand the numeric system of each dimensions rating, it means very little; but there are some good explanations.  I think where it really starts to hit home is when you compare at least 2 countries.  For that, I started with the country I would assume is the most like the US, the UK.  Not surprisingly, the two are very similar.  In fact, 4 of the six dimensions are within 5 points of each other (the scale is 100 total for each dimension.)  But even with our strong similarity, there are 2 dimensions that we vary significantly.

The first is Uncertainty Avoidance:  the UK comes in at 35 while the US come in at 46.  Only a slight difference, but this means that Americans are slightly less tolerant of uncertainty, a bit less willing to take things as they come.  I have seen this first-hand in working with leaders from both.

The largest gap is in Long Term Orientation with the US coming in at 26 and the UK at 51.  What does that mean?  It means that those in the UK would be more future oriented.  With more and more multi-nationals, it is changing some, but the clearest example of this in business is the American emphasis on quick results, how companies live and die by the quarterly results.

Next, I decided to look to our neighbor to the South, Mexico.  I’ve had the opportunity to work with many in Mexico both colleagues and suppliers.  Despite our geographic proximity, the cultural differences are pretty stark. It is the opposite of the correlation with the UK – here only two categories are less than 30 points apart. 

The first is Long Term Orientation, where we share that desire for quick results.  The second is Masculinity, with our respective scores of 62 and 69 it means that both our cultures are more driven by competition – a good one to share for business for sure.

On each of the other 4, we are far off from one another – a quick summation of what that data tells us is:

Power Distance: US 81, Mexico 40.  It means that culturally, Mexicans are more accepting of the hierarchy in society, and in business too.

Individualism: US 91, Mexico 30.  Not surprising to see the US so high – its reflective of the ‘looking out for number one’ mentality, whereas Mexico’s culture is more group/family oriented.

Uncertainty Avoidance: US 46, Mexico 82.  Mexico is much more adverse to uncertainty and a need for rules and security are important.  I’m sure you can think how a business relationship or contract might be viewed very differently on one side with this in mind.

Indulgence: US 68, Mexico 97.  The higher the Indulgence score the more a culture values enjoying life, are more optimistic and prioritizes leisure time.  That may not marry well with the expectations of American hustle culture.

So what does all this mean with respect to how we do business?

First, I would say that each time you have a new interaction coming (new team, new supplier, etc.) you do some research on the culture in the country.  Try to highlight where your two cultures are far apart. Then actually use that to shape your actions.  For negotiations or contracts, think about potential changes or better ways to explain portions that may not be well received.  Then adapt your contracts and style to better match the culture.

Do the same for interactions with colleagues and especially for employees.  Do you need to explain why you do something a certain way?  Do you need to adapt any processes? What about your engagement or leadership style? Will it be interpreted the same in the other country? Make sure your actions aren’t viewed inappropriate.

Outside of cultural dimensions, have you thought about how the country’s holiday schedule may affect your business cycle?  Make sure you treat all holidays with similar respect and give as much leeway as your business can allow.

At the end of the day, it all comes down to two things: make the effort to understand and then actually apply it to your work. You’ll gain respect and drive more overall value for your organization.

Does anyone really know what their supply chain risk is?

October 21, 2022

20 years ago, Donald Rumsfeld, then the Secretary of Defense of the United States, said,

“[A]s we know, there are known knowns; there are things we know we know. We also know

there are known unknowns; that is to say we know there are some things we do not know.

But there are also unknown unknowns — the ones we don’t know we don’t know.”

While our purview as supply chain leaders and practitioners may be less critical than that of the Secretary of Defense of the US, the statement on risk holds true. And it is our duty to ensure that we address the ‘known known’ and the ‘known unknown’ risks in our supply chains.  I won’t address the ‘unknown unknowns’ for obvious reasons.  That said, these ‘unknown unknowns’ should likely be addressed in your business’ disaster recovery plan and typically would be financially unfeasible or impossible to fully mitigate.

So which risks can we mitigate?  Which should we focus on?

There are three major areas:

Operational Risks

Financial Risks

Legal, Reputational and Geopolitical Risks

That’s a lot – but how do we decide what risk needs mitigation and how should we do it?  The answer to that isn’t simple, but a good starting point to develop your plan is:


Supplier risk management is likely not the most exciting part of your job; it’s likely not the part of your job that gets reported in monthly metrics either.  It’s easy to ignore.  If your organization has had its head blissfully stuck in the sand and been lucky enough to sustain your business, congratulations on your lucky streak!  But now an open and potentially difficult discussion is needed to appropriately prioritize supplier risk.

It’s human nature to sometimes be overwhelmed when we can actually see the problems before us – sometimes the to-do list makes us feel organized, other times it makes us feel like we may never catch up.  Make it anyway; and take some comfort in the fact that this first step may change a few of those ‘known unknowns’ into ‘known knowns.’

Why can’t life and business be more like

The Great British Baking Show?

September 29, 2022

I don’t watch a lot of reality tv – I say that not to try and put myself out there as one of those people who is “too smart for tv” but more so to clarify my preferences.  It seems to me that most reality TV falls into three major categories: a talent contest, a metamorphosis, or a peek into the personal lives of a group of ill-behaving humans. I dislike most of them, but the ill-behaving humans are the WORST.

The “ill-behaving humans” shows are typically cast with some of the worst human beings acting on the worst human instincts: constant yelling, treating other people as transactional pieces of meat, hair-pulling fights, a wine throw to the face, etc. The talent contests can be a bit interesting, but the banal commentary from the judges just doesn’t entertain me – and they often include bad performances just to mock the contestants.  The metamorphosis shows, usually a home redesign or makeover of a person, can be interesting if you like the subject matter at hand; but the thing that is the worst is the emotional manipulation of the audience with the over-the-top sob story. I swear, the people that make it on these shows have had lives that make the last verse to the 1970’s country song "You Never Even Called Me By My Name" sound like a pretty good day by comparison (if you don’t get the reference, go YouTube it now, be sure to listen all the way to the end.)

With all that negativity out of the way, let me share the bright shining star among reality shows: The Great British Baking Show*. If you aren’t familiar with it, here’s an overview.  If the title didn’t give it away, it is a baking competition show in Britain. Each week the contestants face 3 challenges for baking, usually centered around a theme (think Bread Week, or Biscuit Week.)  The judges are two accomplished bakers and there are two hosts for humor and color. Through each of the challenges contestants receive honest feedback from the judges. At the end of the show, based on their overall performance on that week’s challenges the judges choose one Star Baker – the prize is the title, nothing further – and they announce one contestant that is eliminated from the competition.

I’m sure you’re thinking – didn’t he just describe every reality contest show?  Pretty much, but here’s the difference: the contestants are all kind to each other; they even help each other out during the competition when they can.  No fighting, no talking down the work of another, they accept blame for and acknowledge their mistakes and don’t blame others or outside factors, and there are no attempts to try and sabotage the work of the others.  It really is amazing to watch. Now I’m not a social scientist, but there is one differentiating factor that might be driving this: there is no monetary (or even monetary equivalent) prize.  I repeat, this reality contest show that is popular in multiple countries has ZERO prize money. The winner gets a pie plate. So perhaps it is the fact that they aren’t trying to win $100K or more that shapes the tenor of the show, but I think it’s more than that.  I think they intentionally cast good human beings, not looking for those that exemplify the worst in all of us.  Over the course of 13 seasons, they’ve also built their own type of culture for the show even though the contestants change.  That’s why watching the show is the entertainment equivalent of a nice warm cup of cocoa in front of a crackling fire

So back to my initial question: why can’t life and business be more like The Great British Baking Show?  Or better yet, HOW can we make life and business more like The Great British Baking Show? Here are few ways to drive this in business:

How can we incorporate these behaviors even more directly with our supply base too? Each one of the suggestions above work just as well with suppliers, ask yourself:

What can you do to be a better “judge” or “contestant” at work? What about at home?

I know there are many other ways to drive this, not just those called out above – what are your thoughts?


* The show’s official name is The Great British Bake Off in its original form but is marketed as the The Great British Baking Show in the US.