Wednesday, July 31, 2013

What Supply Chain Needs is Long Term Thinking

We all know there is a conflict - a push / pull relationship if you will - between delivering current results and looking out to the long term.  The story goes that the short term are the "table stakes" meaning you have to deliver those in order to earn the right to think long term.  This makes sense.  After all, you would not want your company to go out of business in the short term just to ensure some long term plan is in place.

However, I do not believe that is our problem.  Actually, the issue is the other way around.  Very rarely do I see real true long term thinking.  How could you identify if your organization is spending too much time on the here and now versus setting up your strategy for the long term?  Here are some indicators to look for:

  1. Do you have any projects which span multiple years?  This is really a key indicator of strategic versus tactical thinking.  Tactical thinkers believe that somehow, magically, the whole world changes at the beginning of every year.  This, of course, is not true and therefore a strategic thinker is one who delivers todays results while working on a multi year strategy.  Very few real strategic plans and projects can be done in one year. 
  2. Does your bonus plan involve a strategic component?  If you are paying bonuses to your employees, especially senior manager and above, only on a yearly basis (they start and stop in a year) than you must likely are too entrenched in tactics and are not thinking strategy.  A way to ensure some strategic thinking is occurring is to provide bonuses based on some kind of 3 year (or maybe even 5 year) result.  Why?  Imagine you want to create an incentive to your team to redesign your supply chain network for the future.  This is at least a 2-3 year project to get it installed then, most likely, another year or two to find out if it actually works.  If you provide bonuses to hit timelines and finish tasks then you are not paying for performance rather you are paying for activity.  Pay for activity and you will definitely get more activity - just not sure that is what you want. 
  3. Every performance appraisal should have multi year projects on it.  Remko van Hoek (Twitter handle @remkovanhoek - Global Procurement Director for PwC and Visiting Professor at Cranfield School of Management) stated in an exchange that he has always had multi year projects on his goals for the last 3 roles he has been in.  This is the sign of a very strategic organization.  He also suggested said in a response to my tweet:  "Begin and end with the customer, think supply chain holistically, not silo, individual or quarterly gain".  Good advice and if you follow that you are pretty well assured that you will be thinking long term. 
Finally, I would like to address the issue of longevity in roles.  One of the big strategic problems is the speed with which people move around.  How can you ask someone to be strategic when they will be measured on just what they do this year and, if they do well, they will get promoted and move on.  For key roles (such as VP of Supply Chain) you have to inform them they will be in the role for 5 years and they will be measured on a 5 year performance cycle.  The first year or two are set up, then the last year 2 -3 years are execution.  Then and only then will you know if they did well and if they thought of and implemented a great strategy.  

If they come into a role, do some quick fix (slash costs) then get promoted I can assure you it will be a disaster.  

In the end, how you set up your culture and your rewards system will determine if you have a great strategy or just a bunch of disparate tactics. 

Warren Buffett once said (paraphrase):  Our business is not based on the orbit of the earth around the sun - meaning they do not set arbitrary targets and deadlines based on when January 1 comes along.  You should avoid doing that as well. 

Continue the conversation on Twitter using hashtag:  #Thinklongterm

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