Observations from the AMR Supply Chain Executive Conference: The constant interplay between efficiency and effectiveness

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As always the AMR/Gartner conference, held this past week in Phoenix, was well attended, informative, and, believe it or not, a lot of fun.  This year we had some of our Sales organization attend and that is always bad news for the Marketing folks.  We have neither the stamina for nor the practice of the late nights, let alone the will to refuse to participate. Before the meeting we heard that the meeting was fully booked and that people were being turned away.  I am usually sceptical when I hear this, but I have to say all the sessions were packed with many people standing at the back of the hall.  The Top 25 dinner on Wednesday evening was well attended as was the barbecue on Thursday evening.  While we did not attend the Peer forums run during the day on Wednesday, I heard anecdotal evidence from attendees of a packed house.  While good for AMR, and the conference as a whole, I interpret the strong attendance numbers to mean that companies in North America are feeling a lot more bullish about the economy.  This is important given the theme of the conference, which was “The Economy of Abundance: Rebuilding the Infrastructure of the Global Supply Chain for Sustainable Growth”.  Rebuilding infrastructure is not cheap and is a long-term commitment.  One has to be fairly confident of the outcome before embarking on infrastructure investment. As always the announcement of the AMR Research Supply Chain Top 25  is one of the main events. In announcing the list for 2010, Debra Hofman made the observation that

"Twenty years ago, a typical product company had supply chain reporting to manufacturing, with responsibility mainly for inbound materials management and outbound shipping. New data shows that supply chain reports to manufacturing in only 6 percent of companies surveyed, while 61 percent have the head of supply chain reporting directly to the CEO, general manager or president of the business."

For those of us who have toiled in the industry for years, this is good news.  I don’t mean this in a selfish manner, but rather that it is great to see that the value added by the supply chain function is being accepted and therefore the transformative capabilities of the supply chain function are being adopted.  The value add is from being able to operate more efficiently and therefore to reduce costs, while improving customer service.  The transformative capabilities are from being able to operate more effectively in an increasingly global market with a widely dispersed supply chain because of off-shoring and outsourcing.  But also more effectively in terms of using the existing infrastructure – whether currently inadequate (emerging economies) or crumbling (Western economies) – at a reduced environmental cost. I compared the top 10 companies on the AMR list for 2010 using the free Kinaxis Benchmarking Service, and summarized the results below.  The AMR convention is to average the results over the past 3 years, which I have done too.  One observation I would like to make based on the table below is the constant interplay between efficiency and effectiveness brought out by the fact that the two companies with the highest  net profit, Cisco and RIM, have amongst the worst working capital ratios (WC Ratio), other than Apple (which is number 1 on AMR’s list).

The speaker list was carefully and well chosen.  I was struck by what seemed to be a conscious effort to get more speakers from outside North America.  The keynote address was given by T. Boone Pickens, chairman of BP Capital Management and founder of the Pickens Plan.  I had never heard Mr. Pickens speak in person before, and was thoroughly amazed at his command of the facts.  He spoke for over an hour without notes and without a script, constantly reeling off facts about the energy industry.  While not entirely aligned with Mr. Pickens politically, I find his plan to use natural gas compelling.  Some facts he stated which made me sit up and take notice are:

  • Maximum oil production in the world is 85M barrels/day.
  • Demand in 2008 was projected at 87M barrels, until the economic crisis hit
  • Forecasts for Q4 in 2010 is 86M barrels.
  • 70% of all the oil in the world is owned by state run oil companies
  • 1 mcf of natural gas is equivalent to 7 gallons of diesel
  • 1 mcf of natural gas costs $4.10
  • 7 gallons of diesel cost $21
  • A battery cannot move an 18 wheeler
  • The US spends $1B/day on oil imports

While these facts are compelling reasons to adopt the Pickens Plan for the conversion of the heavy truck industry to natural gas, it is also a wake-up call to all supply chain practitioners about the future cost of fuel and its impact on the supply chain.  While switching to natural gas in the US makes sense from an economic perspective, most supply chains are now global and will be under increased strain from both cost and scarcity of fuel.  If we include sustainability and “green” issues, there is a lot of incentive to rethink our supply chain designs and to operate our existing supply chains both more efficiently and more effectively. In keeping with the theme of the conference, the other speakers, namely Robert Blackburn (BASF), Didier Chenneveau (LGE), Brian Krzanich (Intel), and Richard Lechner (IBM) all emphasised sustainability in all its aspects including reducing the impact of application and by-products (including containers) of the main product.  But the overarching theme of all the speakers was the effective use of the supply chain to reduce the movement of goods to a minimum while satisfying customer demand in order to reduce the financial and environmental cost of the supply chain. We had a much bigger presence than normal at this conference and it was well worth the cost and effort.  The quality of the speakers is excellent and AMR does an excellent job of identifying a topical theme.  As always the more detailed sessions run by AMR analysts were also of excellent quality.  There was a real buzz at the conference about S&OP. Jane Barrett of AMR made the observation that many of the companies that were early adopters of S&OP have now started to use a different term to distinguish their more mature S&OP practices from standard practice. One can always tell when a topic is reaching critical mass because people start inventing new names for it in order to differentiate their application. I’d be really interested to hear from other people who attended the conference to compare and contrast observations/opinions.

Discussions

Trevor Miles
- June 09, 2010 at 1:15pm
A good friend of mine, Jerry Holbus, reminded me that Peter Drucker said it right (pun intended):

Effectiveness: Doing the right things
Efficiency: Doing things right

Naturally, a huge difference.

Thanks Jerry.

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