There is a big difference between knowing an answer and implementing a solution that takes you to it. Many companies take our answers and the prices we predict and get exceptional results while others are less successful.
In my blog, Data, Mastery and Culture: Part 1, I defined three observed areas of customer performance where the best performance comes from companies in Area C. In that blog I stated, “The companies in Area C have tight management of their purchasing process and excellent negotiating skills”. I will now explore this idea in more detail.
In simplest terms, companies in Area C set corporate wide objectives on direct materials cost and have coordination mechanisms and tools that enable targets to be achieved. Use of coordination mechanisms is part of the culture as is the accountability system that ensures achieving targets is a living part of the company’s fabric.
Many years ago Dr. Tony Bailetti, who was a professor at Carleton University and became director of their Technology Innovation Management (TIM) program, provided me with an explanation of the importance of coordination mechanisms to companies. Paraphrasing and simplifying, his message went something like this:
“In small, start up companies, coordination takes place automatically as everyone sits together and knows what’s going on. They all have common goals that they strive to achieve. As companies grow, employees are no longer in proximity and information sharing gets lost or, at least, becomes more difficult given they could be in different buildings, cities, organizations and even countries. Mechanisms must be put in place and managed to restore the communication and understanding that has been lost.”
Coordination mechanisms can be meetings, objectives, councils, software applications, behavioural norms, town halls and even walk arounds; anything that restores shared understanding and creates alignment to the overall objectives and goals. Area C companies have managed to do this well.
From what we’ve observed, Area C companies:
- Set cost targets on e-components based on market conditions and manage consistently with determination to attain them,
- Have established coordination mechanisms to share objectives, expectations and understanding and are deeply committed to managing with these mechanisms across the company,
- Create a culture that is pervasive across the entire corporation and have achieved a company wide, cooperative team without silos or corporate gamesmanship,
- Have shared best practices across the company,
- Negotiate using all the leverage they can create. Asking a supplier for a quote and accepting anything that is sent back is not negotiation,
- Maintain good relationships with suppliers and treat them as respected partners; they make commitments to suppliers and keep them. They expect the same in return and hold suppliers accountable to meet their commitments. It is not a surprise that our star Area C company had comparatively fewer issues with MLCC supply last year than was typical of the industry,
- Operate with a single, cross company ERP system and maintain their component data to a high-quality standard, and (I almost forgot),
- Use Lytica’s tools.
How does your company stack up and what are you doing about it? Which Area are you in? How do the practices at your company compare with the top performers?
I have devised a simple test to help you assess your company against these observations. For each of the questions below, rate your company’s alignment to these observations by answering with a 1 when the alignment is low and a 3 when high. Use a 2 if you are aligned somewhat. I hope you score higher than 20.
|DOES YOUR COMPANY:||ALIGNMENT SCORE
1 = LOW
2 = MEDIUM
3 = HIGH
|Set cost targets and manage with determination to attain them?|
|Have coordination mechanisms and the commitment to manage them across the company in order to share objectives, expectations and understanding?|
|Promote a pervasive corporate culture to achieve a cooperative team free of silos and corporate gamesmanship?|
|Share best practices across the company?|
|Negotiate using all the leverage available to them?|
|Maintain good supplier relationships, treating them as respected partners?|
|Operate with a single ERP system?|
|Maintain data to a high-quality standard?|
|Use Lytica’s tools?|
One barrier to good coordination experienced by many is the lack of common systems and component naming conventions. This is particularly severe in companies that have grown by acquisition or in large decentralized companies with strong, autonomous divisions. If you are in this situation, an option to improve e-component management is to operate with a tool like Freebenchmarking.com at the factory level and let Lytica consolidate and coordinate your information corporately. In this construct, your information and third-party data are brought together in a central library accessible by all authorized employees. One really cool thing about this is that our AI technology, cleansing and component library allows each factory to look at the entire corporation as though it was on a common system with standardised naming while still using their local systems and conventions. This approach enables objectives to be set and tracking to real market opportunities. Contact me if you would like more information on this pan-enterprise/cross-factory approach.
Getting results is as much about your corporate behaviour as it is about understanding problem details and having good targets. While you work on culture and behaviour, let Lytica help with problem understanding and targets. In future blogs I will talk more about problem understanding and targets.