The Hindu Business Line : Masters and slaves of the supply chain

Rapidly growing industries such as IT and ITES (IT-enabled services) bring their own set of challenges. One of the top-most challenges for any IT company in the country is that of supply chain management.

Companies swing between periods of excess and scarcity of resources. When resources are excess, margins take a beating. When they are scarce, projects are delayed, and quality is impacted.

Unlike manufacturing, where raw materials are (reasonably) standardised, the IT industry has to invest in training and bringing people to a common level of skills before they can be used.

Resources cannot be purchased off the shelf, but have to be hired, trained and deployed over a period of several months. Unlike raw materials that sit in the factory store, employees (the raw material and manufacturers of software) walk out of the building every day - and several of them do not come back! Clearly, supply chain management in IT services is a unique challenge.

Wherever there is a challenge, there are winners and losers. Or, in this case, masters and slaves of the supply chain. The masters move ahead confidently, secure in the knowledge that their supply chain will deliver.

The slaves tread with caution, constantly looking over their back to check if all is in order. What is it that makes a company a master of this game?

Two fundamental things

Two things are fundamental to supply chain success. The first is to have strong demand forecasting and planning systems. The second is to have adaptive supply processes.

On the manufacturing side, for instance, most of the successful fashion retailers have built core capabilities in these two areas.

The trick is to predict and plan as best as possible, and then have a flexible supply system that can adapt to the vagaries of demand. Not many IT companies have built in this sophistication as yet. Many of the companies have poor forecasting systems. They consistently miss or exceed their own targets. The hiring processes are rigid and do not allow for variations. As a result, the companies are either scrambling for staff or wondering what to do with all the extra people they have.

The second problem that they consistently face is absence of the right kind of people. The middle management structures are poor.

As one research report recently pointed out, there are too many workers and too few leaders. As a result, project execution suffers. People are promoted based on need rather than merit, and training programmes are cut short to fill up supply shortfalls.

What the masters do

Supply chain masters behave very differently. They have strong forecasting systems in place. The forecasting systems are linked well with the recruitment systems. There is a clear plan for people required in different roles.

Yet, the hiring process builds in a certain level of flexibility. This allows it to ramp-up or decrease hiring based on actual market situations. The key is that the demand and supply sides of the organisations are constantly talking to each other, figuring out how to minimise risks along the chain.

The masters also display some distinctive characteristics. They tend to be strict meritocracies, where promotions are earned and not given because of necessity.

Training processes are rigid. People are not pulled out of training in order to staff a project. The estimation processes are rigorous and accurate. As a result, there are few project overruns.

In summary, the delivery processes are strong enough to ensure that there is little variability in the middle of the supply chain. By reducing the variables from three (demand, delivery and supply) to just two (demand and supply) - they realise huge efficiency gains. As companies scale up, supply chain management becomes a core capability.

Those who build this capability will prosper. Those who do not build it will consistently experience failures in the market place. When it comes to your destiny, would you rather be a master or a slave?

Amit Garg is founder, MXV Consulting, a strategy and operations firm. amit@mxv.in

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