A Solid foundation determines future success
In the Analytics hype frenzy, it is easy to forget that a significant work needs to happen, specifically in a Supply Chain context, BEFORE you even start collecting the required data. These initial steps are the foundations upon which your analytics or digital transformation initiative will be built. In this post, I will walk you through, step by step, on some initial steps that are getting lost in all the noise around analytical methods.
I will use a hypothetical company as an example. For this post, we will assume that our hypothetical company already has mission statements and clearly stated goals. These are sometimes stated in annual reports and during industry analyst briefings. You might not have paid attention to these in the past, but they are extremely useful in understanding the critical success factors that could help define a project.
Step one – Senior leadership Interviews to generate high level business insights and initiatives
Anyways, coming back to the CSFs, they are the most important goals that must be achieved to move the business forward in fulfilling its mission and strategy. Each line of business will have unique CSFs in describing how they will help the company reach its goals. That said, there are some general business-related questions that you can ask regardless of the line of business to tee up interesting dialogues. Those questions include the following ones:
- What are your key business initiatives that are currently at the top of your priority list?
- How do these business initiatives align to department goals and deadlines for execution?
- What business problems keep you awake at night (regardless of where they are on the priority list)?
- How do you measure success in your line of business and how does it align to your compensation (since compensation often drives behavior)?
- Is taking on risk in driving new business initiatives personally rewarded and something you gravitate towards?
After asking some questions that are general in nature, you can thus focus on specific business initiatives that the business leader has in mind.
To provide an example here, I will explore a typical business goal that we find present in many Industrial Internet companies across many industry verticals- the optimization of the supply chain.
Identified Business initiative: The Monster called “sub optimal Supply Chain”
Supply chain inefficiency can cause several bad outcomes. Finished products might be under produced, and those that are produced might not meet quality standards. Products might be late in appearing in the market. Marketing promotional budgets might be misspent on products that are in short supply. Inventory could be wasted and factory or distribution center floor space could be inefficiently utilized.The impact to a company’s financial health can be huge.
When these kinds of supply chain problems occur, you might hear about them on a company’s quarterly financial earnings call.
Step two : Tapping department heads to tame the Monster
Since supply chain inefficiencies can cause problems that must be addressed in several lines of business in a company, you should interview the impacted business leaders. Some of the questions you might ask of business leaders in product manufacturing, supply chain management, and finance could include the following ones:
- VP of Product Manufacturing:
- Do you have specific examples of supply chain inefficiencies that impacted production?
- What was the measurable impact to production?
- What would be the impact if you could eliminate 10 percent of these inefficiencies?
- VP of Supply Chain Management:
- How quickly can you identify problems in the supply chain today?
- What are the typical steps that you take to remedy the situation?
- What would be the impact if you could identify these problems in 10 percent less time?
- Chief Financial Officer:
- What is the impact on the company’s financial results caused by supply chain inefficiencies today?
- How quickly do you realize when there is a problem in the supply chain that impacts production output?
- If you and Product Manufacturing and Supply Chain Management could remedy the problems identified by them in 10 percent less time, what do you think the impact would be for production and the company’s financial statement?
You might notice a few things about these questions. The questions are stated in ways that will directly impact the business stakeholder being asked. They also postulate that a new solution will not fully eliminate the supply chain inefficiency problem, but will begin to reduce it. Being conservative in approach is often viewed as sound business logic.
We are also trying to get an idea as to how big the problem might be, and the value of a potential solution to the stakeholders in the last questions we’ve posed, within each line of business. This can help us understand the potential business impact and whether our stakeholder might see so much value that they will want to become a project sponsor.
In this example, each line of business leader has a different view as to the CSFs related to supply chain efficiency, based on how it impacts their piece of the business as well as different views on additional revenue and potential cost savings. None of this should be considered as unusual.
Business benefits (Financial Impact) identified by the leaders
The CSFs and the financial impacts the leaders identified were as follows:
- VP of Manufacturing:
- The factory should operate 24X7 at maximum capacity, thus yielding $10 million in revenue from additional products that are produced, and savings of $5 million associated with misspent wages, benefits, and other costs that must be paid during factory downtime
- VP of Supply Chain:
- All necessary product components should be available just in time for manufacturing, yielding a $5 million savings in storage of parts and elimination of rush orders of parts in short supply
- Chief Financial Officer:
- Production should able to match product demand yielding $15 million in revenue from the additional products produced and $2 million saved on marketing products that are not currently available and $2 million saved in using secondary suppliers to fill necessary parts gaps
Next, we will look at gathering KPIs, and some of the KPIs that were identified as needed by these stakeholders to effectively run the business.
Step three : Gathering KPIs
A KPI is a measure that enables an organization to determine the current state of the business and the progress being made towards business goals. The business leaders you are talking to will be familiar with the importance of such metrics, given that they likely already manage their business using some of them in spreadsheets or dashboards. Your goal is to identify specific KPIs that will help the business leaders deliver the CSFs that they identified in our interview. The KPIs are usually gathered when the CSFs are identified.
Why we must talk to senior business leaders We’ve seen technology folks, particularly in IT, insist that they know what the business wants without a need for interviews. While they might have knowledge of the most important CSFs, when the discussion turns to the potential business benefits and the KPIs needed to run the business, they often begin to realize that appropriate line of business interviews and discovery makes sense (especially when it becomes clear that there are many follow-up questions). Of course, we always keep IT in the loop regarding what we are discovering.
Let’s look at the KPIs that might be identified in our supply chain optimization example. We’ll view them in a form as shown below, which is now partially completed:
We’ve left the priorities column blank for now, as this is a discussion we’ll have with all three lines of business present. During a follow-up meeting, we will first summarize the CSFs and KPIs we’ve documented and validate that we haven’t missed anything during these interviews.
Do we think we will have a business case for a project? At this point, we are encouraged. The revenue and savings impacts are in the millions of dollars. If these impacts were only in the tens of thousands of dollars, we would rightly be skeptical that the project would be able to demonstrate a positive return on investment once we figured out the costs of procurement, development, deployment, and ongoing management of the solution. These CSFs were all related to the supply chain inefficiency problem and a single project. You might find a much more varied set of CSFs present when you perform discovery across a diverse organization that will lead to several unique projects. Regardless, the approach used is the same.
Wishing you all the luck in your Supply Chain transformation initiatives !