Supply Chains + Agile Project Management = Profits

Relentless pursuit of money alone doesn’t produce the profits it once did because a money-only (or money-mostly) focus causes companies to optimize efficient production of existing products at the expense of their ability to change and create new products as markets evolve. Companies optimized for efficiency are like cars optimized for speed. They go fast and work fine as long as the road is straight; but when the road twists and turns they can’t handle the corners and go flying off the road and crash. Winding roads need cars that are responsive, not just fast.

There is an inescapable tension between efficiency and responsiveness. They’re at opposite ends of a spectrum; you have to position yourself at a point on the continuum between those two that best meets your present circumstances. And as circumstances change, you need to keep repositioning yourself. Failure to do this has been the downfall of many fine industrial age companies in the last several years; they stayed at the efficiency end of the continuum for too long while their markets evolved and customers went elsewhere. Believe it or not, customers want more than low price (even in tough times like now).

Traditional Pursuit of Money and Efficiency won’t get You Where You Want to Go

This traditional tendency to focus too much on efficiency was apparent in a PR communication I got last week from a company announcing their new supply chain management system. The CEO of the company is quoted saying, “Clients turn to us to eliminate cost and increase efficiency in their supply chains”. The system is described as, “an integrated extension of our clients’ multi-channel, global supply chains aimed at improving global operating efficiency and time to market, while reducing cost.”

These phrases are traditional code words for a system designed to assist companies in implementing efficiency oriented money-only or money-mostly strategies. Big-clout companies attempt to implement systems like this to give themselves control over their suppliers in the name of achieving greater efficiency. And what happens is these systems shift profits from suppliers to the big-clout companies. Big-clout companies then become complacent with their profits and suppliers loose their motivation to do anything new because they aren’t making any money. So then when the market changes, everybody (the whole supply chain) flies off the road and crashes as demand for existing products drops and new products haven’t been developed.

Wealth is now created by supply chains that enable companies to better collaborate and coordinate their activities so as to keep up with changing markets and keep delivering new products that customers want and will pay profitable prices to acquire. When companies find what customers really want they also find customers want a good price but that doesn’t mean the lowest price as long as they get what they want. People want products that keep responding to their changing desires and circumstances (even in tough times like now).

As a case in point, consider what happened to that once simple product called the mobile phone. In the late 1990s Motorola owned the market and their StarTac phone was a popular, low cost and high quality product. But Motorola focused too much on a money-only approach and optimized itself and its supply chain to make low cost, high quality mobile phones that now nobody wants to buy anymore. Customers moved on to other mobile phones that responded to their changing desires. First Nokia came out with colorful and stylish phones and customers bought them even though they cost more and had some quality problems. Then Blackberry came along and combined email with a mobile phone and

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