Splitting Demand from Supply in IT… and also in IT Consulting firms

I came across this very interesting article by McKinsey on reorganizing IT within enterprises. Their recommendations are interesting because they let the CIO then use very traditional forecasting and demand-supply tools to plan IT investments.

Most interstingly, however, this reminded me of an early consulting engagement where I had made similar recommendations to an IT Consulting firm on improving operations.

While enterprises may choose to consider McKinsey’s approach, the implementation and reorganization of a massive organization will take time. I think that IT Consulting / outsourcing firms could organize themselves more rapidly in a way that gives similar, if not the same, set of benefits to the enterprise.

Splitting Demand from Supply

The model was simple, and in fact some leading consulting firms such as Accenture and IBM already have organizations that are similar. However, it is important to know that the model can apply even to smaller firms ($1-2M annual revenues) with inconsistent demand from individual verticals.

This is particularly relevant to US-focused IT firms in Pakistan whose sales performance is largely disconnected from the performance to the Pakistani Unit.

We can split the core set of production engineers in outsourcing firms into two primary groups.

A Core Tier of professionals will form the permanent demand units within the business. An Execution Tier will become the supply units.

The Core Tier

The Core Tier will consist of indiviudals that are asked to focus entirely on one unique industry vertical. Their chief responsibilities will include:

• Act as relationship manager and primary contact for all implementation projects from customers in that vertical

• Be responsible for understanding the industry well enough to translate what the Customer says to what the Customer needs.
• Identify and source all the supply for the solution. Identify and manage the supply units needed to implement and deliver
• When demand from a vertical is low, participate actively in creating demand and understanding the vertical more deeply. Create frameworks and reusable solutions reduce design and implementation time ; Work with free supply units to create usable software modules that are relevant to the industry’s growing needs ; Understand and participate in industry-specific events enough to improve the turnover from the proposals you write.

The rules governing these positions were almost identical to the McKinsey recommendations (which I Quote).

• Align demand organizations with the business units
• Let demand organizations own business processes
• Give demand organizations a mandate to rationalize demand
• Empower demand organizations to manage suppliers

The Execution Tier

These can be of further two types — one set of people that are focused on a particular product or technology stack (in case business is stable enough to support that), and a smaller tier of “consultants in training” that can be rapidly switched between industries and products in order to fill capacity requirements for projects.

Being Careful

The mistake I keep seeing with IT consulting firms is that their teams are all accumulated around products, but not many people are focused on verticals or pure business analysis.

From some perspectives, this is because a lot of IT firm managers consider ‘business analysis’ as an expensive overhead, especially if their focus needs to be sustained when there is low demand for a vertical.

However, I think an IT Consulting firm with teams that are all focused on products is setting the wrong prescedent for its brand.

The team cannot provide customers industry insight, and cannot ever support the Consulting firm’s leadership in new business development. In fact, the team is likely to create the major mistakes of making “technology first” recommendations in their solutions.

It was those types of “technology first” solutions that caused the big electronics bust from poor supply-management in early 2000s “If you buy SAP, all of your business problems will be solved” went the typical slogan of early 2000s.

Getting it Right

IT Consulting always has been and will be a practice of consultancy. The work must be able to create new value for the customer, open new areas of opporunities, allow the customer to think more strategically. The work must immediately improve the business performance of the firm, and protect business intersts in the long term.

It must be based on the industry, the customer’s unique business position, the customer’s unique processes and teams, and the customer’s unique plans. The technology itself, and whether or not it is configured-to-order or built customized for the customer comes at a much later stage.

Companies who understand this, and build specific vertical specific demand units in their organizations can benefit significantly. They are able to create a highly cohesive Core team of consultants that are all active participants in the business development pipeline.

This is the type of thinking that lets the IT firm be a core team of 4-5 consultants making more than $4M / year, as opposed to a $2M 30-person company that cannot sustain itself during downturns.

This is also the type of thinking that can help reinforce a company’s credibility, which is clear in the case of Techlogix, who have been able to grow rapidly because of delivering very well on commitments, which came from them aligning their teams around types of IT solutions (EAI etc.).

…break continues…

Well my blogging break continues….

It’s great to have 10 things to do in the day… not so fun when that becomes 30… and a downright pain when you add scope creep to it.

Unfortunately I dont have the luxury of a weekend these days in which to plan G&W posts.

 

I will still be posting things to G&W but it will be a bit sporadic. I thank the patient audience in advance.

 

In Supply Mgmt terms: I have a situtation where I have oversold (time) and thus now have limited supply (of time) to actually deliver to the distribution channels.

The pop-quiz question is : Why am I choosing G&W as the delivery channel which gets less-than-expect delivery of goods? 

Two great avenues for entreprenuers to become global supply partners

I mentioned earlier that it is important for Pakistan to become a part of the global supply business.

Disclaimer: China and other countries already have a significant head-start in what I am about to say here — the good thing is, that these avenues do not depend on who’s first.

Let’s get some facts out of the way :

Fact : we will face a greater set of resistance initially from international customers in convincing them to take their businesses to PK.

Fact : Part of this is an image problem of the country.

Fact : Most of it is a quality issue.

But here are two ideas for entrpreneurs and dynamic companies alike to think about.

As always, a long coffee-session follows. Refill your mugs before diving in.

Thomas Friedman on Dell’s Role in Political Stability

Maybe I tend to refer or promote this book too often but it is true that Thomas Friedman raised some very relevant points in The World is Flat, albeit somewhat obvious to those looking.

He has a great chapter where he describes his thesis of how he thinks a country’s political stabilization is becoming linked with the presence of the country in the global playing field, using Dell as a reference.

I thought it was relevant to write this here because a lot of people in their living rooms complain about how businesses in Pakistan suffer the onslaught of political unrest.

— JUMP

Friedman’s theory, paraphrased, says

‘any country who is part of a significant global supply chain will never see wars and other political unrest — the cost of war for them is to lose $MB in money flowing through them’.

He quotes the example of escalating relations between India and Pakistan a few years ago, where the IT industry in India lobbied to the govt to de-escalate the environment. India, because of being part of the global BPO services supply chain, cannot afford political unrest.

So what does this mean for Pakistan? Well it is good to know that the New Economy is such that businesses can infact determine a role in the political stability of a country.

Our job-shops, factories and materials people need to jointly explore creative ways of becoming atleast one stop in some company’s global supply work — maybe we are materials suppliers, part-makers, manufacturing advisors, what have you.

We need to start taking IP infringement very seriously — infringing on global patents confines the business to remain within the country, it being illegal being the other bad thing ofcourse.

This is actually easier than one might think, and I might discuss some short-term entreprenurial ideas for getting there at some time.

In the idealistic, utopian, long-term: local IC manufacturers feed into local part manufacturers into local product designers all involved with international contracts.

ATO and factory load Part2

We discussed ATO basics a few days ago.

In order to implement ATO, you will naturally go to your factories and ask them to move away from requiring bulk orders up-front, and move towards a long-standing agreement to assemble products according to your customers’ orders.

The biggest concern you will hear from the factories is that of load. “What if you give us 15 orders one week, and 5 the other. What happens then?”

The concern is a very valid one, and infact will be core to any solution. Any solution will be bounded most by the load on the factory, and end-customer price point, among other things.

ATO and factory load Part1

Lean manufacturing essentially started as a means to react to changes in demand in a way that would not result in losses to you and to your suppliers. In one sense, you do this by moving the ‘inventory holding centers’ upstream — i.e. instead of you holding inventories for finished goods, your suppliers, or their suppliers, or theirs, might keep inventory. The rest of the chain just works in a real-time manner to incoming demand.

Parts suppliers — holding stocks of, says, buttons, would be able to assume the risk of holding stocks because they can always sell buttons to someone else if demand for your product changes.

Assemble-to-Order (as opposed to build-to-stock) is one manufacturing process that relies on an agile supply-chain to be successful. ATO can be used to achieve zero-inventory, but most prominently it will help you minimize your working inventories.

After the link I very briefly introduce the benefits of ATO. Without going into theory of how to align your supply chain for ATO manufacturing. I was to start analysing this within the context of Pakistan. 

Why Build-to-stock-only worries me

I mentioned in my last post on lean manufacturing that the model adopted by the industry is a bit disconcerting.

It is more than just build-to-stock manufacturing. As I mentioned I am particularly concerned because companies will often not even forecast the stock to keep. The businesses would just build up a large amount of inventory, and keep going until they stock runs dry, before scheduling another purchasing run.

Why is this a concern? Many things, discussed after the link. But remember, I only point these out so that we can start thinking of strategies to fix them.

To ensure the analysis is complete, please do inform me if you know of anyone doing lean manufacturing, or has minimal inventories. Even if it is a bakery, or scratch cards launched by ISPs. I would like to know who is doing it smartly.

Lean Manufacturing in Pakistan - MIA?

I have had the chance to meet some manufacturers now in Pakistan, and have observed the supply practices of several companies, and I keep seeing a disconcerting trend.

Manufacturing operations here work quite the same way as IT software houses — entirely project-based, and quite unwilling to explore different supply models.

The factories would do nothing until they get a well defined order — “Give me 30,000 units in two months, here are the specs”. The factory would then plan, build capacity and execute the project. They would expect bulk payments, sometimes even in advance as a mobilization charge.

The term in the industry for this is “lag capacity”.

What concerns me more is the supply models used by companies: only build-to-stock manufacturing.

We analyse some examples after the link.