Análisis de contenido. Categorización y codificación

A number of years ago executive management at a major steel producer presented an ultimatum to its subsidiary railroad units: Achieve a certain level of return on net assets (RONA) or risk divestiture from the parent company. Historically each railroad operated as its own business entity, and the parent company measured the financial performance of each unit separately. For the first time it became obvious that the different railroads needed to coordinate their activities across many different dimensions or face a very uncertain future.

This case illustrates how a strategic risk (divestiture from the parent company) was avoided through actions supported by stressing the four enablers described in this chapter—effective measurement, organizational design approaches supported by strong central leader ship, capable human resources, and the extensive use of information technology. Combining these four enabling areas with strong central leader ship changed the way this company conducted business with its suppliers.

Rallying around a Superordinate Measure

A key learning from this case involves the power of a seemingly ordinary measure (RONA) to become a superordinate measure that helps reduce risk at the corporate level (the measurement enabler). A superordinate measure is one that no single part of an organization can achieve on its own. By definition, the presence of superordinate measures demands that different groups work together or fail individually.

An emphasis on net asset return began when executive management challenged the railroads to develop new ways to meet or exceed an estab-lished RONA target. Figure 3.2 shows how this company measures RONA.

A focus on this measure forced different functional groups to think about the big picture and how they each impacted that picture. The cor-porate decree to improve RONA forced functional groups to devise cre-ative ways to increase earnings while simultaneously reducing assets and other liabilities.

Figure  3.2 also shows how various groups were responsible for dif-ferent parts of the RONA equation. Accounting worked to improve accounts receivable and payable while marketing assumed responsibility for increasing revenue outside the parent company. Finance had respon-sibility for validating the savings and the numbers that populated the RONA equation.

Return on Net Assets =

Earnings Before Interest and Taxes (Inventory + Accounts Receivable + Plant Property and Equipment + Other Current Assets) – Accounts Payable

Marketing and Sales: Focus on increasing revenue from non-parent company operations

Procurement: Focus on longer-term systems contracts featuring lower prices and consignment inventory

Finance: Track, validate, and report overall progress

Accounting: Focus on better management of receivables and payables Operations: Focus on improved forecasting, better management of capital equipment requirements

FIGURE 3.2

Managing return on net assets (RONA).

A small centralized purchasing group (the organizational design enabler) focused extensively on the denominator of the RONA equation.

This group was responsible for developing innovative ways to manage spare inventory, which for the railroads represents a major financial com-mitment. This group radically changed how the railroads contracted with suppliers, changes that resulted directly in better financial performance and reduced risk.

Managers from the departments responsible for supporting the RONA target met regularly to share information and to discuss progress against their financial return targets. A sense of urgency surrounded these meet-ings simply because the risks were so high. The railroads viewed their asset return achievements as objective evidence of their contribution to the par-ent company.

Reducing Supply Risk through a New Approach to Contracting The central purchasing group’s approach to improving RONA involved the development of three- year systems contracts that featured consignment inventory. Previously, contracts with suppliers, if they could be called that, were developed by the individual railroads annually. Inventory consign-ment involved deferring payconsign-ment for an item until a user at a railroad physically takes an item from a yard or warehouse and receives it into the railroad’s inventory. The central procurement group developed 25 to 30 systems contracts, each covering around 25 items, with six suppliers.

Contract renewal or renegotiation occurred every three years.

The procurement group redefined how the railroads sourced materi-als, a change that reduced financial and strategic risk. The previous pro-curement model featured each railroad issuing its own annual purchase orders. This model, which almost always featured annual price increases, was replaced by contracts that combined the volumes of the six railroads to realize more attractive prices and service. The central procurement group represented the interest of the six railroads not only when develop-ing companywide contracts and but also durdevelop-ing supplier negotiations.

While systems contracting is a radical departure for this company and its suppliers, it was not new to the head of the purchasing group. This indi-vidual had extensive experience with systems contracts and consignment inventory while working at General Electric (the human talent enabler).

This highlights a major lesson here—transferring knowledge from one

industry to another can provide tremendous benefits, particularly when dealing with a less- sophisticated industry.

Early in the process, purchasing announced that it would not accept higher prices due to any inventory carrying costs for the consigned inven-tory. During negotiation planning, purchasing used previous costs as a basis for price negotiation, although some suppliers attempted to add con-signment costs into their purchase prices.

Why would suppliers agree to a systems contract that requires them to assume inventory carrying costs? The major incentive was three- year con-tracts that resulted in greater volumes that offset any consignment costs.

Furthermore, the willingness of the railroads to take ownership of unused consigned material from suppliers at the end of each year reduced some supplier risk exposure.

Purchasing relied extensively on spreadsheet tools to analyze purchased items. Tying into the railroads’ automated inventory databases, the pur-chasing group calculated actual usage and company- wide requirements, identified potential systems contract part candidates, and calculated inventory investment figures (the IT enabler). Spreadsheets were also used to analyze supplier- provided data before commencing formal negotiations.

Computerized spreadsheets that retrieved data from various databases were invaluable when developing systems contracts. What became evident from this analysis was that a supplier may not be competitive across all items being considered on a systems contract, something that encouraged the development of “configured supply networks.” Figure 3.3 explains the concept of a configured supply network with a simple set of data.

The purchasing group also conducted frequent meetings with the presi-dent of the railroads to report on progress. The presipresi-dent’s agreement with the systems contracting approach sent a strong message to suppliers con-cerning the seriousness of this new way of doing business. Meeting with executive management also served to protect the president from being caught unaware or being unduly influenced when contacted by suppliers who preferred the old way of doing business.

Systems Contracting Benefits

Systems contracting featuring consignment inventory produced direct benefits for the railroads. First, purchasing achieved its primary goal of reducing inventory investment by almost 50%. Cash flow also improved

due to lower ordering and inventory carrying costs. The railroads also avoided or deferred price increases due to fixed pricing agreements.

Systems contracts have also allowed for some downsizing as suppliers assumed responsibilities for delivering and placing physical inventory in storage at the rail yards and warehouses. In short, there was a great deal to like here.

While the parent company failed to achieve its own financial targets, the railroads achieved net asset returns of over 50%, prompting some to suggest that perhaps they should divest themselves of the parent company.

This new way to operate, supported extensively by the four enablers out-lined in this chapter, helped the railroads avoid their ultimate risk—their own demise!

CONCLUDING THOUGHTS

It is inevitable that the evolving discipline called supply chain risk man-agement is going to be more complex, sophisticated, and demanding compared with what we face today. The development of risk management

Item/Part Number Supplier A Supplier B Supplier C Supplier D

442311 Gloves $1.26 (per unit) $1.65 $1.45 $1.29

338922 Wax $7.45 $7.61 $6.15 $6.90

9963782 Glasses $2.10 $2.54 $2.43 $2.91

746322 “D” Batteries $.40 $.30 $.36 $.35

854471 Soap $4.45 $4.01 $4.55 $4.50

Assume suppliers provide the following quotes for supplying system contract items.

Step 1: Working row to row, identify the lowest price for each item.

Annual Volume Supplier A Supplier B Supplier C Supplier D

Gloves—80,000 $100,800 $132,000 $116,000 $103,200

Wax—5,250 $39,112 $39,952 $32,287 $36,225

Glasses—3,000 $6,300 $7,620 $7,290 $8,730

Batteries—30,000 $12,000 $9,000 $10,800 $10,500

Soap—8,000 $35,600 $32,080 $36,400 $36,000

Total $193,812 $220,652 $202,777 $194,655

Step 3: Sum the shaded areas to arrive at a cost of $180,467, which is almost $13,000 less than the lowest cost Supplier A ($193,812).

Step 4: Configure the supply network to use different suppliers for specific items to take advantage of price differentials.

Step 2: Calculate the total dollars based on annual volumes. Each cell = (price × volume)

FIGURE 3.3

Creating a configured supply network.

strategies must become more commonplace, and this demands building a foundation of people, systems, measures, and organizational design that supports risk management excellence. After thinking about the four enablers presented in this chapter, how many of us would logically con-clude these enablers are not critical to effective risk management?

Summary of Key Chapter Points

• Perhaps one of the most underappreciated parts of corporate suc-cess, including successful risk management, is the role that organi-zational design plays.

• Supply chain risk management is rarely established as a distinct function within a company, although most organizations designate a “point person” with responsibility for risk management. Businesses have not yet agreed upon any typical way to integrate supply chain risk management into their decision- making processes.

• Various design features are ideal for including risk management as part of their scope, including sales and operations planning; collab-orative planning, forecasting, and replenishment processes; execu-tive responsibility; organizing around processes; and organizational work teams.

• Regardless of the type of information technology platform or soft-ware used, supply chain systems should have the ability to capture and share information across functional groups and organizational boundaries in real time or near real time.

• It is important to understand the important role that shared, real- time data can provide to risk managers. There is no question that

“big data” is the next big thing in the IT world.

• Measurement supports making fact- based decisions about risk issues.

Measurement is also an ideal way to communicate information, pro-mote continuous improvement, convey what is important, and iden-tify whether new initiatives are producing the desired results.

• A second major part of building a risk management foundation is forging the critical linkages between risk management strategy and supply chain strategy development.

• Making risk assessment plans a required part of any strategy devel-opment process forces participants to consider risk issues when developing strategies while helping to embed risk management into the corporate culture.

• A supply market risk analysis should include a supply market intel-ligence report, a categorization of identified risks, a risk scenario map, a comprehensive risk management plan that identifies specific risk management action, and a listing of references and information sources that include objective information about the demand and supply market.

ENDNOTES

1. Hamel, G., and C. K. Pralahad. “Competing for the Future.” Harvard Business School Press, Cambridge, MA (1994), as referenced in Hellriegel D., J. W. Slocum, and R. W.

Woodman, Organizational Behavior, South- Western College Publishing, Cincinnati (2001): 474.

2. Dumke, Daniel. Accessed from http://scrmblog.com/ review/ researchers- perspectives- on- supply- chain- risk- management.

3. Accessed from www.scm.ncsu.edu/ public/ cpfr/ index.html.

4. Teach, Edward. “The Upside of ERM.” CFO, November 2013: 44.

5. Lambert, Douglas M. “The Eight Essential Supply Chain Management Processes.”

Supply Chain Management Review, 8, 6 (September 2004): 18; Mackay, David, Umit Bititci, Catherine Maguire, and Aylin Ates. “Delivering Sustained Performance through a Structured Business Process Approach to Management.” Measuring Business Excellence, 12, 4 (2008): 22.

6. Trent, Robert J. “The Use of Organizational Design Features in Purchasing and Supply Management.” Journal of Supply Chain Management, 40, 3, (Summer 2004): 4.

7. Vance, Ashlee. “The Data Knows.” Business Week, September 12–18, 2011: 70–74.

8. Cappelli, Peter. “Balance Your Talent Requirements.” Inside Supply Management, 21, 10, (October/ November 2010): 28.

9. Paskin, Janet. “Finding the ‘I’ in Team.” Bloomberg Business Week, February 18–24, 2013: 78.

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