Platt Perspective on Business and Technology

Moving past early stage and the challenge of scalability 34: reconsidering and rethinking the supply chain 3

Posted in in the News, startups by Timothy Platt on June 21, 2013

This is my thirty fourth installment in a series on building a business for scalability and long-term success (see Startups and Early Stage Businesses, postings 96 and scattered following for Parts 1-33.)

As noted in Part 32 and Part 33, I began discussing the role of supply chain systems in business expansion and scalability in Part 9 where I briefly outlined how business-to-business collaborations in these mutually supportive contexts can create shared value and increased market strength and competitiveness for all participating supply chain members. I then began rethinking what I wrote there, and about what I had left out and certainly where due diligence and risk remediation factors come into play, and where supply chain systems are set up in an increasingly transnational and global context. I saw potential for problems, and certainly for businesses that thrive, and even just survive on the narrow profit margins of highly competitive mature industries such as garment manufacturing and where a premium is placed on cutting operating expenses wherever possible.

And then the disastrous collapse of the Rana Plaza factory building took place in Dhaka, Bangladesh with a loss of life of over 1,100 workers’ lives and with many injured and even maimed for life. (See Parts 32 and 33 of this series for a brief discussion of that event.) And this represented precisely the type of risk realization event that I have been concerned about.

• My goal for this posting is to at least begin a discussion of how businesses and supply chain driven business-to-business collaborations can be set up and managed, and strategically carried through upon with sounder risk management-aware strategic and operational planning and execution,
• But without loss of competitive strength or market share.

That, at least at first glance, comes across as a contradiction in terms as risk reduction and the proactive and remediative efforts that would go into limiting the likelihood of a disaster like the Rana Plaza disaster cost money. Any such due diligence effort would cut into potential profitability by increasing ongoing operating expenses that would have to be covered before any profit could be realized. And I stress here, that the garment industry operates on a very narrow profit margin to begin with, from the intensity of marketplace pressures to keep costs to end-user buyers as low as possible, and with rapid ongoing changes in styles so strongly demanded, and with that meaning that inventory in hand quickly becomes remaindered and only sellable at still lower prices.

• Improvements and streamlining in infrastructure systems, and particularly in information and communications technology systems can go part way in making necessary cost-effectiveness savings possible.
• Improved database systems to cite just one possible target for such improvement, with data type and data management systems harmonization between supply chain business partners can help by speeding up processes and allowing for leaner and more rapidly responsive and nimble infrastructure overall, and particularly when these data systems are connected through more reliable and agile broadband connectivity systems. And this only touches on a few possible points in these complex systems where economy-enhancing and creating potentials are available.
• But these and similar infrastructure improvements tend to be very short-lived as sources of distinguishing value and competitive advantage, as any such improvements found to offer value anywhere are quickly diffused out and adapted throughout entire industries as new baseline performance standards.
• When everyone has moved to a same new performance and efficiency level for some aspect or functionality of their operational infrastructures, no one can create distinguishing competitive value from that improvement that would set them apart through it.

So any lasting and reliable improvements in business systems that would lead to business-differentiating competitive advantage, have to come from other sources than just improving basic infrastructure. Any such competitive advantage-defining difference is going to have to come from more disruptively novel sources, and in forms that cannot easily, inexpensively or rapidly be replicated by the competition. And this brings me to the core question that I would at least begin to address here, for this posting and for this now three part segment of this overall series:

• What can a business do that would both set it apart from its own direct competition and facilitate its working more effectively with its supply chain partners, but that its competition could not readily replicate?

One of the business process-redefining conclusions that at least should come out of the Rana Plaza disaster, is that for the garment industry and in fact for many industries, competing businesses have find answers to that question that would create risk reducing competitive advantage for them. In this, they have to find novel and disruptively new ways out of the risk-enhancing race to the bottom for operational quality by simply cutting infrastructure and supply chain operational expenses at all costs and regardless of risk. So finding and implementing a real, workable answer to this question has become a vitally important requirement for developing more effective, next generation businesses.

I do not pretend to have or to be able to offer a one size fits all answer to this, and even for just one industry. But I will continue this discussion in my next series installment where I will discuss some of the issues and some of the basic parameters that would have to be addressed in developing such an approach. Meanwhile, you can find this and related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

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