Friday, January 28, 2005

Logistics & Supply Chain 101

In order to stay true to myself I have to give a bit of Logistics 101 here. Most people when they hear the word logistics, if they know it at all, they think of the military. Since time began, warriors have needed weapons, food, clothes, and a host of other things to keep them ready, capable and willing to fight. Thus logistics was born from the ox carts and wagon trains to carry everything from supplies to families in support of armies.

From today’s perspective, everything you buy comes to where you buy it in a truck. And for those of us in the business you should read a good article in the vernacular of our times called, “No Truck Left Behind” by Cliff Lynch, of whom more is noted below
( )

That truck came from some inventory location which was supplied by some production location which was supplied by one or more material locations and this could go on and on and on and actually does in real life supply chain.

If you are not familiar with logistics or supply chain, just take something you recently bought, look at where it was made and spend some time thinking about what it took to make it and get it to you. The right size, the right color, the right store at the right price.

If the product or service was made in your town maybe this process of getting it to you was not so complex. If the origin was across the country or across the world the logistics can be and usually is very complex.

What is Logistics?
Logistics Management as defined by the Council of Logistics Management (CLM): “Definition- Logistics Management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements.

What is Supply Chain?
Supply Chain Management (SCM) as defined by the Council of Logistics Management
(CLM): “Definition - Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.

And following all of that, Value Chain must be included:
Value Chain: A series of activities, which combined, define a business process; the series of activities from manufacturers to the retail stores that define the industry supply chain.

Once you have gotten through all of the above, or you are in business and have some perspective of what your supply chain or logistics is, but would like to know more, lets talk about some really good resources that can help you develop a further understanding.

Let me also say, with fully disclosed bias, that this is a great industry! For those of you thinking about a career or a career change this is a fundamental business that is nearly 10% of the GNP of this country.

Working in the atmosphere that is created in supply chain and logistics is Living The Dream (for many others like myself). Now, if you are a 9 to 5er and like things the same every day, this is NOT for you. But if you like challenges and things to be different every day. Come on in.

There is nothing more dynamic than the work on a daily basis of trying to match the supply and demand of goods through the capacity and capabilities of the supply chain to get those goods to the right place, at the right time, in the right condition, at the right cost. That is Living The Dream!.

This year the Council of Logistics Management has changed its name to the Council of Supply Chain Management Professionals. This has been and continues to be the premier association for anyone related to logistics or supply chain in business of which I am proud to be a member. This organization provides education and learning which is second to none in this industry( ).

For quick reference to almost anything about logistics on the web, I have found a good site to be CLO Express ( ). CLO being Chief Logistics Officer, (a position and title that there are too few of around the world today). Another good location on the internet to find supply chain information is Supply Chain Sites at ( ) and of course the CSCMP noted above will never lead you astray.

For supply chain and logistics magazines my favorite is Supply Chain Management Review which is published bi-monthly ( ). This magazine is not for casual logistics reading, it is full of meat and potatoes on supply chain and logistics. Other good reads are Inbound Logistics at ( ) and Logistics Management at ( ). Global Logistics and Supply Chain Strategies magazine has a nice site called Supply Chain Brain at ( ) which should round out the periodical reading. There are others that I read from time to time, but this list will keep you busy for a while.

Now, for hardcover study of the discipline, I would recommend the following: “The Logistics Handbook” by James F. Robeson and William C. Copacino as an A to Z reference guide. If you come to the conclusion that you need supply chain and logistics but do not think it best to do it yourself then I would read: “Logistics Outsourcing – A Management Guide” by Clifford F. Lynch. (By the way, Cliff Lynch is one of the top practitioners in the field, find him at , he is as close as they come to being “Mr. Logistics”). Links to both of the books are on the left of this site.

Any questions or comments on any of the above or additional supply chain or logistics are welcomed either in the comments or by email. Soon I will go through the other side of my professional life and give Business Process Management 101.


Wednesday, January 26, 2005

Innovation, How Could That Be Questioned?

As mentioned in previous posts, I regularly read CIO magazine and its regular newsletter. My interest is not usually the technology but the business management and leadership articles that are placed there to help round out those readers who have been mainly technologists.

This month an article by Christopher Koch named “Innovation Ships Out” puts forth the fact that in the technology value chain outsourcing has incrementally grown ( see “Strategic Incrementalism” in the Jan 19, 05 post of this blog) to include product development. The supposition that is added to the fact is with product research and development outsourced, “Could this be the end of America’s innovative edge in electronics?”

“Some economists say the outsourcing of manufacturing – and now design – is the leading edge of a longer-term trend toward reduced innovation and competitiveness among U.S. companies.” … this could have a “withering effect on these companies’ ability to create the next breakthrough, …”

What is innovation? A straight definition from Merriam-Webster is “the introduction of something new”. In business innovation is a systemic approach to hitting targets, goals, objectives, new products, new processes that no one else even sees.

To Live-The-Dream, innovation means getting in the weeds and driving the details of piloting, modeling and simulation to create value for the customer. The SINGLE MOST VALUABLE item a business has is its customer’s order (See Jan 11 05 post, Rule #2). If you believe that your battle is to stay focused on that order and continuously improve that order, and you model, pilot and simulate that order you will innovate that order.

The ability to create, change, and improve is not something you just do, it is something a business must live and nurture. Many innovations come from the unexpected or are counterintuitive and those situations come from knowing your basics and responding to changes in customer’s requirements with speed, efficiency and flawless execution.

In other words, push the envelope. In the last 240 years where have the risk takers, the explorers, the entrepreneurs, the capital creators in business been from? Right here in the United States of America. “…the American archetype. ….energetic, brash, hugely ambitious, money-conscious, none to scrupulous, far sighted and ahead of his time, with a passion for the new and, not least, a streak of idealism which clashed violently with his overwhelming desire to get on and make a fortune” (Paul Johnson, “A History of the American People”). This is who we are, and there are few like us.

What is the mainstay of the U.S. economy? Productivity. Our productivity has grown by 4.2%, 1.9%, 4.8%, and 4.5% from 1999 -2003 respectively (2004 numbers will be out in Feb. 05). For years the U.S. has been among the leaders in productivity each and every year. That is innovation!

Consider that 20+ years ago logistics costs in America were at 20% of GNP. That meant that nearly 20 cents of every dollar was spent on inventories, transportation, warehousing and distribution. For several years now logistics as a percentage of GNP in the United States has been below 10%. When you consider the growth and the size of our economy through that period, run the numbers and the savings has been and continues to be ENORMOUS. That has and is continuous innovation.

The CIO article continues noting that spending on R&D by US companies and the portion of the spending targeted toward innovation have and are declining. Gregory Tassey of NIST ( ) states that this country has the view that private industry is capable of making the necessary investments in R&D to keep the U.S. competitive while other governments are funding research into private businesses for innovation. Could our view be right and all the rest of the world be wrong?

Alexander Hamilton was probably the one individual most responsible for the financial and commercial system we have lived under for over 200 years. He said, “The maxims of the United States have hitherto favored a free intercourse with all the world. Commercial enterprises have only desired to be admitted to it upon equal terms. The United States has nothing to fear from commercial engagement with the rest of the planet."

“How long can U.S. companies continue to innovate when they no longer manufacture or update products?” asks Koch.

How did we get here and how do we keep going I would ask? Capital and capacity are key ingredients of innovation. We are the world leader in capital formation and when anything has become a commodity we send it somewhere else (outsource). That is where our capacity to innovate comes from.

People who believe that breakthrough product development requires manufacturing and research to be physically together have missed several things. Technology and the internet have reduced the value of geography such that multiple activities can function together without being in proximity to each other. Simulation can create things in peoples homes while wearing pajamas that are to be the next generation of innovations.

Thinking must move beyond the industrial age.

The United States is the most innovative economy in the world. Our culture is change (though individual human nature resists it). We have always created the new to replace the old. There is pain in doing so, there is cost in doing so, and there is risk in doing so.

Anyone not prepared to take risks cannot win (a war) says Winston Churchill.

Are we about to lose our innovative edge? Only if we let our pain, our costs,, our risks and our challenges become our fears.


Tuesday, January 25, 2005

Job Outsourcing, Are We Dying?

An article by CNN’s Lou Dobbs called, “Is Outsourcing Killing Jobs” in Optimize Magazine ( ) starts with the premise that the American middle class is being forced to compete with cheap foreign labor which will result in systemic job loss and a reduction in our standard of living. I beg to differ.

What has been overlooked in the midst of the outsourcing debate has been the consumer. Both the American consumer and the international consumer. The American middle class consumer, the very people who are claimed to be at greatest risk for losing their jobs are the very same people who reap the advantage of lower cost goods. The international consumer, who is not having world class goods being made in or near their own markets are now more able to afford and consume those goods as their costs are reduced.

We all know that the movement of manufacturing is about reducing cost, but not much is said about that movement with reduced cost is about supplying the markets in to which the production is moved. Having worked with several global companies who have moved some of their production to China, those companies have realized that the Chinese market is able to absorb a majority of the production created there.

That is not true in all cases but is a critical point in the discussion. It is likened to the 'postponement' process in supply chain as you postpone the final assembly or configuration of your good until it is as close to the consumer as possible. Outsourcing in a large part is purely that. This is NOT to say that another large part of outsourcing is about lowering operating costs for goods to be sent back into the US and other industrialized countries.

Further, Americans have had a lot to do with this phenomenon themselves. How many Americans are driving Toyotas, Nissans, Hondas and listen to Sony's and play on Play Stations?

If those who seriously want to make noise about losing American jobs, ask them how many goods they have in their homes and what cars they drive that do not have "Made in America" stamped on them.

If you want jobs in your community, then shop in your community (and that does NOT include some of the large box stores that claim to promote American goods). If those who are genuinely concerned about this issue from a pure job loss perspective are willing to take action, the only message that can be sent is to have people buy nothing but American made for a day or a week or a month...that would send a message that was credible.

But globalization has a momentum that not even the nay-sayers can stop at this point, and they should not for it is a good thing. Spreading jobs and economic growth is likened to the President speaking about spreading liberty. It's only with economic growth and liberty that people begin to build lives and families and futures that will remove the "I have nothing to lose" situations that breed hate and terrorism around the world.

Those like Lou Dobbs, who are still trying to ring this alarm for all of us do not realize the reality of the situation. They have not been in China, Malaysia, Thailand, India recently or if they have they were to busy talking to really see what is going on.

Have any of the falling-sky callers actually been in the factories? If they had, they would know that the majority of the JOBS ARE ALREADY GONE!.

Most Chinese factories in the last five years have been running at between 20% and 50% of capacity as their workers and their management come up the learning curve. In the next five years they will move up to 80%-85% and what then? What then is not only will the factories supply the export market, but they will be gearing up to meet the needs of the largest growing consumer market in the world, their own. India is doing the same thing. Get over it, its already done, the jobs are gone (in the most part).

As for America, we must educate and train our people so that innovation and growth again are the foundation of our economy. American history is all about transition from one era to the next, we have endured pain in each of those transitions and we need to offer training and support to those most affected. But bringing back jobs already gone is senseless.

We need to take advantage of our graying workforce and use them as mentors, teachers and counselors to the new generations that will continue our world leadership in creativity, productivity and innovation. These tenets are the core of American business and have sustained us as world leaders many generations before and will many generations after the current transition.

Globalization is not a risk, but a wonderful opportunity to continue the course that has kept us who we are, Americans. Transition is the American way and there is no reason to believe that our skills in dealing with this challenge will be any less to the task than they have been for several hundred years.

Without risk, we are not at our best, so bring it on; who we are will not desert us now.


Wednesday, January 19, 2005

War, Innovation, Gorillas, Relevance, & Strategic Incrementalism

From time to time in my email is one of my favorite newsletters, Corporate Warfare and today was one of those times. “The Risk of Normal Innovation” by Tal Newhart, ( ) was the topic in the Corporate War Newsletter ( )

Now I have to admit I am something of a hawk when it comes to defense and business. Or maybe you could say it is just intensity. Hawk or intense either description carries risks.

For those of you who resemble that remark you also need to be aware that intensity, motivation, speed, or a sense of urgency can easily be misinterpreted as arrogance, aggressiveness and ambition, which it may be unless you check your intent (see the December 31 post on Intent).

When that happens, your in for a war that is not about the innovation or change you are working on but about you, and you don’t want that kind of struggle, it will not change anything.

Mr. Newhart tells the story of Alexander the Great and the Gordian Knot. Alexander found a solution no one else had found, take out your sword and slice it in half. From that we are prodded to look at problem solving differently. Create innovation and usually you will need to slice it into bite size pieces so that your customers will accept it (internal innovations need the same approach).

In today’s business we need to provide solutions that are relevant to our customers. Not just good ideas or products but value creation that customers both want and are willing to pay for.

To find value that is wanted and willing to be paid for you need to be communicating with your customers regularly and testing innovations with them for relevance. Usually, those innovations will need to be sliced into very small bites as few customers will either swallow or pay for an elephant.

Of course all of that means nothing if once you design a solution and find its acceptance you don’t implement it, because a good idea is no better than a bad idea unless its implemented. But once implemented, you are not finished even if your solution is right. Because right is only determined in business by the outcomes. Did the implementation add measurable value to your customer AND your company?

Mr. Newhart mentions ‘disruptive technology’ as a pop term used to speak to innovation or change that is relevant but does not include all the scope (and perhaps complexity) that it can be. In other words creating the first small bite, knowing the innovation or solution will have improvements to come and value to add and price increases to pay for it. Offer the first bite and that bite only, after it is finished, move on to the second bite (See Strategic Incrementalism below).

It also speaks to your knowledge of the direction in which your customer(s) are going.

That reminds me of the gorilla story.

When a gorilla is in a glass walled room with Phd’s looking in and studying every move. While they believe that the animal is learning new things, all the gorilla really wants is the banana. Customers are the same. They want just what they want. You cannot sell them more even though it contains the bite they need. I like to call this: “Strategic Incrementalism”.

Give them what is relevant now, and up-sell them the steps toward the entire solution in pieces as they absorb and assimilate them. This helps you control costs and increase margins as the progress continues. It also keeps you from having to generate ‘point-solutions’ every time a customer rings up to say they want a change.

Know where they are going and you will stay relevant.

A great point is made that if you are not innovating, your customers are and they may decide to innovate with someone else. So what is your Gordian Knot? How are you going to think differently to untie it before your competition does?

Mr. Newhart says that “A company exists to create customers”. Agreeing completely with that statement (in my earlier post “Rules Part I”) rule number two says that the ONLY thing of value in your business is your customer’s order. So create orders and customers with innovations of bite sizes and up-sell them to grow margins and profits.

If you don’t see that easily, you are not focused on your customers. All the bells and whistles you have don’t mean a thing unless as we both are saying you are creating customers through their orders.

Now go out and be a Warrior Diplomat, starting with courtesy, creating value with innovations and delivering customer loyalty and profits with Strategic Incrementalism. Oh, and don't forget the sword.


Saturday, January 15, 2005

Fear of the Brain Drain

One of my favorite magazines to read is CIO (Chief Information Officer). I am not a CIO, nor am I a techie of any quality but CIO always has a few interesting articles. They reach out to technical people (CIO's in particular) and gives them both business and leadership articles in order to round out their capabilities from the core of technology. It is these articles that I really enjoy. I will admit from time to time there are technology views that hold some interest as well. If you are a manager you might have a look at where they have blogs running well as articles and subscription information. For many I believe that the subscription is FREE if you fill out their information.

What brings me to all of this is my copy of "CIO Insider" which is CIO's weekly eNewsletter which I also read. Most of the time I agree with their management and leadership guidance but this time their Knowlege Management editor, Megan Stantosis missed unless their only readers are government and/or legacy companies and they are not.

Ms. Stantosis' article titled, "Don't Put Your Company in a Purple Haze, Let your retiring Baby Boomers go, but not their knowledge." She bases her comments on a book by David DeLong, Lost Knowledge: Confronting the Threat of an Aging Workforce. I have not read the book, but the article asserts that companies are facing a real and substantial problem with baby boomers retiring and taking their knowledge with them.

I responded to the article with the following:

In some parts of business and in some parts of the world the economy might still be bad, but that is being reduced in the number of verticals still slow and the slow economic geographies are shrinking. So the poor economy tone puts a question to the views outlined.

Second, there is no mention of the brain drain that occurred over the last 15 years with early retirements and then mass layoffs as companies drove themselves lean. The knowledge lost in those events was substantial and in very few cases were there any attempts to retain knowledge. Cuts were made first and the attempts to recover were made later by those who were left behind, often without training to figure it out. We are all the recipients of the poor training and service each day as we try to buy, sell or trade with other companies.

Today, as the economy is quickly recovering much of the knowledge lost has been recreated and the demand for people is growing into a universe of applicants that are less prepared and less qualified than we would all like.

The challenge today is to get the training needed to the new hires and lifting them to the level that is needed to serve the customer.

The baby-boom drain is going to be less of an event than I believe it is made here. Thousands upon thousands of baby-boomers took early retirements and bought Mailbox stores which much to their delight became UPS.

The knowledge risk in the next five years is going to be the ability to impart business knowledge to the people still working who are less well trained than needed and that knowledge to new people who are being added and will be added as growth continues in the near term.

( )


Thursday, January 13, 2005

A Bit of Time

The posts are not flying out as planned as I have taken some time to read "BLOG" by Hugh Hewitt.

Apologies... will continue with more biz wisdom shortly.


Tuesday, January 11, 2005

BizWizDumb Rules Part I

Over time there have been a few discoveries of business rules that apply to all. Some have been given, some found and some were moments of orgasmic genius that came from me but I cannot take the credit for. All that I am came from a merciful God, my family and all those who gave to me freely of their wisdom for better or worse. Thus far in my thirty (30) years of working I have noted almost thirty (30) rules. A few today will be a start:

Rule #1 Any company that puts a primary focus on managing cash flow will manage it to zero.

Don't misunderstand this as cash is to business as air is to life. Cash is air. Without it business dies, but an obsession with managing cash will take eyes off the ball of generating cash. This is a regular problem with companies that are having problems. When things are getting bad someone decides that the senior management has to focus on cash and then the end is inevitable. It will manage to zero as cost cutting, collections and cash management replace sales, customer service and quality products. Having worked for a federal bankruptcy court trustee proved this to me in spades, having also worked for several companies that did not survive and several turn-arounds that did balance is the key and it is so easy to get overly focused on cash.

Rule #2 The one item of greatest value in your business.... (and this applies to ALL) is your customer's order.

There are many valuable items in a business, its people, its assets, its knowledge but as pride can cause a great person to fall it can also cause a great business to fall. The Company is only as good or as valuable as its orders or queue of orders (which I pray you all have is a large queue). Let this soak in for a bit, ruminate on it and then take a look at what it takes for a customer to do business with the company. Make it easy for the customers to place orders, to get orders, to want to order.... Regardless of how much capital, how many people, how much equipment or how much cash a business has, if it has no orders for its products or services all the rest will return to dust. Nothing or no-one is more important than the customer's order, period.


Saturday, January 08, 2005

At Work, What is Important?

So, do you like what you do? Are you good at what you do? Does what you do excite you and motivate you to get going every day? Do you believe that you are actually accomplishing something? Do you sometimes think that because you care your going crazy? Or you wish sometimes that you would not care, but you cannot stop caring? Do you think you can change the world? Are you good at pushing water uphill with a rake?

Do you believe? I said, “Do you Believe?” Brothers and Sisters, “Do you Believe?” (just feel a little Southern Gospel, that Holy Roller kind of atmosphere). See yourself as Jake Blues (The Blues Brothers) in cheap sunglasses with the Light shining into your face through the church window. “Do you Believe?”
“You Got To Believe!”

Believe what you say? If you don’t know that already, the fire inside you has probably flamed out some time ago and you need to find some kind of work or activity that can rekindle the fire, or decide that it is not worth it and plod along quietly. But I think that most of you already know what to believe is, it’s inside you and it needs no explanation.

If your answer is, “Yes, yes, I believe!” (although I think Jake said, “The Band!”)
Then either your ready to, or are already “Living the Dream”. And you can say that and feel that if your day is going well or if your mired in the muck of your business day. My friend Bull would always tell us that he was “living the dream” because even in the muck, if he pushed through hard enough he could still create value and he believed he could.

That is the value you know you can create and the satisfaction of accomplishment will still emerge. Even on the bad days (and we all have them) when you go home, you know that you have done something of value.

That is “Living the Dream!”.

Some others don’t look for that level of intensity. They want to work their day, get paid a fair wage and go home and live life after work in all kinds of activities. That is good too. Business needs all kinds of people do accomplish its tasks. We should be thankful for those who do it differently than we do whatever that is. Its not better or worse, higher or lower just different.

If you want a fire, someone must cut the trees and someone else must stack the wood. Different tasks, risks and rewards but both needed for the fire. Some people are happy not to have ever growing responsibility and the stress that sometimes comes with that. God Bless them, we need them, and in fact they are usually the people who really make the money in our companies. They execute the customer’s order, build the customer’s product and touch the customer every day unlike those of us who like to think we run the place and sort of do, but we really are overheads and don’t directly generate revenue.

And the final group are those that don’t like what they do. Never happy and probably not too good at it either, or good by default but cannot wait to escape. These folks either never had a fire, or it has gone out and there is not interest in restarting it. If you are in that group, find something else or stay home!

Life is too short to go through it in bitterness and bad attitude. If you are a manager who stays familiar with the details you will find the people in this group as they will stand out either through poor performance or attitude or disciplinary problems, Once you find them and validate they fit in this group, you need to escort them to the door. They are a disease that you do not want to spread in your company.

Though many of us are intense about what we do, we cannot take it so seriously that we lose our sense of humor. Life is short and we need to be able to laugh at ourselves in the midst of success or failure. If you can’t have fun while you are doing your work, stay home. That’s right, have some fun or stay home

Thursday, January 06, 2005

Business Emotional Intelligence

While burrowing through the stack on my desk to glean a few nuggets of biz-wiz-dumb I came across a thought from Judith Anderson of Anderson & Rust Consultants that said that (in a business context), “When upset emotions surface, nothing of meaning will be accomplished until they are effectively addressed.” At first look that makes sense, but after a bit of thinking about it I end up having to disagree.

Many things get done while there is emotional tension in the air. In business departments, projects, teams, and other groups of people still have to deliver for their customers no matter what the emotional condition of the workplace is.

It does make sense that these undercurrents get addressed openly and fairly for all concerned. In fact Ms. Anderson says that when these issues are resolved we all work together better and more productively because we can all focus on the goals we have before us instead of the emotions that keep us apart. I can agree with that, but what is the reality of everyone in a group, department, project team or other combination of people can really check all their egos and emotions at the door? And how well are we and our managers trained to deal with emotions? How much time and how often would emotions need to be addressed and resolved to keep us focused on our goals and not ourselves? Human nature says that it would be often. Business says that would be costly. A nice goal but a reach for reality

Ms. Anderson tiptoes around the spiritual aspects of people by stating that, ‘there is an essential, authentic essence within each individual which is beyond what we do or say or think or feel….” She is right, but the only way we rein in that ‘essence’ is with the help of God and the Holy Spirit. It is a lifetime battle to overcome ourselves and let the love of others shine through as Christ was the example of.

During this view of nirvana I also found a nugget much closer to reality by Daniel Goleman, the author of “Emotional Intelligence” that follows a common thread saying, “The rules for work are changing. We are being judged by a new yardstick; not just by how smart we are, or by our training and expertise, but also how well we handle ourselves and each other.” (Underline added)

This is true in all aspects of business. We are being measured today on how well we handle ourselves and how well we can be part of teams and projects. How well to we control our own emotions? Is our ego in or out of control?

Are you arrogant or confident? I used to say that the dividing line between arrogant and confident is delivery. That is still true, but confident delivery with humility is needed today. Otherwise you can be seen as arrogant and immediately become an outsider, someone no team wants and no one a company can keep in the long term.

Leadership with humility is real leadership. That does not mean that you don’t make the tough decisions when they are needed and you are called on to do so. It does mean that you listen to good counsel and assess your own intent before you make that decision.

Now, we’re living the dream.

Tuesday, January 04, 2005

Long Tail with Contribution Management

A few more items today, as a new blogger getting my first responses is very meaningful. First a thanks to Hugh Hewitt ( who mentioned my blog, many thanks to be noted by someone of his stature. Second I appreciated the note I got from The Comp Expert at ( who has now led me into a network of business type blogs. Third and not lastly is the long tail concept post that you will find attached to the Long Tail Concept post of yesterday.

I wanted to continue the comment about the Long Tail Concept noting one of the nuggets I drew from the original article and then added to:

●The biggest money is in the smallest sales. (if you contribution manage)

Contribution management is the key in every business to getting the outcomes that either you or the business is working toward. Contribution management is the ability to understand the profitability of each sales transaction or group of transactions that the business executes with its customers. Do you know the profitability of every customer?

For many companies knowing that profitability is a monumental effort. There are many roadblocks to keep the business from knowing. Knowing. Before long you will get to know another view of mine in business, so many businesses, leaders, managers, supervisors and the rest THINK they know what is going on, but do you know that you know? In contribution management you first have to know your order flow processes. Then you build your 'cost to serve'. Once you know your cost to serve for your standard products or services then you can begin to build customer profitability.

Studies have shown that as many as 35% of some company's customers are marginal or profit losing transactions. The most difficult thing to do is to convince the operations that they immediately need to raise prices and/or say adios to those customers. Let you competition have them and use your resources to focus on those that are very profitable and those that are somewhat profitable. Those in the second group you need to work with to improve the return on the work that is done. In today's marketplace, marginal utility is not what it used to be. In the days of lean manufacturing and years of cost reductions hanging on to those marginal and loss making customers is not worth the effort unless they can agree to price increases that at a minimum cover your cost to serve. The real problem is that many companies dont know as they have never fully worked through their cost to serve, even at the most basic level, let alone a fully loaded (all overheads allocated) ABC (activity based costing) for standard products or services.

So the long tail works, but know your cost to serve. Even in the internet world where the cost can be very small, know it so that you can know what progress you do make when you process customer transactions.

Back to Work, Need a Nugget?

Today was my first day back at work for two weeks over the holidays. If I had my choice we would keep praising Jesus for his birth, life, death, ressurection and the gift of the Holy Spirit that he left us instead of going back to work.

A good nugget from Christ is in James 1:19, to be applied in life or in business or anywhere... that we should be quick to listen, slow to speak and slow to anger.

Another bit of biz-wiz-dom I got from my brother a few years ago. We were speaking about some investors in a company he was trying to form and how they were NOT listening to the guidance that was given from those who know the industry the best. He said, "you can't fix stupid".

After letting that soak in for a while, I began to realize how profound that statement really is. And how much grief you can put yourself in for if you dont heed its wisdom.

You can go around stupid, you can eliminate it (in some cases), you can avoid it but you cannot change it.

Think on that for a few minutes and you will see the genius start to eminate from such a simple statement.

Monday, January 03, 2005

The Long Tail Concept

While reading through my daily blog list starting with Hugh Hewitt's blog ( and moving to the next which is the evangelical outpost ( I came across the fourth in a great series of posts about starting a blog. It should be read and listened to (specifically by me who is just getting started).

While in that part IV post the 'long tail' was mentioned. The long tail concept is some greate biz-wiz-dom. It was written about in Wired magazine a while ago and can be found by doing a search on the long tail concept ( Written by Chris Anderson

As usual, I have gleaned a few nuggets from that article that I will share with you here:

Long Tail Thinking

●The Pareto Principle is the 80 / 20 rule
●The scarcity of delivery channels with an abundance of things to deliver
●The 20% rule is traditional success (fits the Fortune 500 structure)
●We have so many in the 80% (so many MORE than the 20%) that if we manage the contribution from each the money will add up fast.
●Volume no longer has a monopoly on focus or profitability
●Our business is NOT about big hits it’s about sales (there are so few big hits).
●Big hits and small hits need to be on strong economic footings, both equally worthy of paying attention to.
●Do we know what our small hitters want?
●The bottom 80% sells also!
●What the hitters really want is MORE! (Products, Services and will pay for it)
●You can find everything on the Long Tail
●Oh sure, in the 80% there is a lot of undesirable, but manage against it, filter it, establish firm baselines, and the amount of undesirable you get will be minimized and the amount of profit will be maximized.
●Barnes & Nobles carries on average 130k titles, 50% of Amazon’s sales are outside the 130k!
●The biggest money is in the smallest sales. (if you contribution manage)
●Think about how to aggregate the Long Tail
●The Long Tail is where you need to provide automated self-service
●The sheer size of the Long Tail is amazing
●The market outside the 20%, in other words the Long Tail market (which is outside the reach of many of the big players) is big and getting bigger.
●How do we construct ourselves FOR the little hitter, instead of being set up for the big hitters, and living off the little ones with a big hitter structure?
●The Long Tail Rules:
1. Make Everything Available
2. Cut the Price in Half, Now Lower It
3. Help the Small Hitter Find What He/She Needs
●Long Tail Lesson: Embrace Niches
●How to aggregate disbursed small hitters?
●Almost anything worth offering as a service will find a buyer.
●Unwrap the costly packaging and sell the basics (all of them).
●By divorcing infrastructure, create a liquid market at low volumes easily available with self service and grow the business.
●Small hitters cost less to get than big hitters!
●Two and three tiered pricing structures work wonders on profitability
●Pull customers down the tail with prices directly related to services.
●Free has a cost, the psychological value of convenience, this is the ‘not worth it moment’ that the wallet opens.
●Offer fair pricing, ease of use, consistent quality and you can compete with anyone, even free!
●Business cannot be only Long Tail, it must be able to deliver in the mainstream 20% as well.
●Use recommendations to drive hitters down the tail (customers who used this service also used this….).
●Long Tail is REAL mass-customization.

Sunday, January 02, 2005

Its A New Year, Time for a New Start

Have you set your objectives for the New Year? Not just the ones that your incentive compensation is driven by, or the ones that the company or department has set. Though these are important, what are YOUR objectives? THESE ARE NOT NEW YEAR'S RESOLUTIONS!!!

If you have not thought about them, take some time now to do so. Don't spend a week, spend 30 minutes, an hour at most. What do you want to accomplish this year? Can you measure to see if you actually accomplish it? Be sure not to set a goal that you cannot clearly describe what the attainment of that goal is. That has happend to me several times and the question always comes about, when do you know that you have done it?

What are your measures of success in business? Is it a raise or promotion? Is it keeping your job? Is it changing jobs?

Do you think about the value you create? That is the true measure of satisfaction in the business book, unless you just have a job, and that is all you want. Draw a check and go home and then you are probably not the person who will be interested in reading this blog. How do you measure your value, both for yourself and for your business?

Think for a minute, how much revenue did you service this past year? How much new revenue did you create or bring to the business? How much cost did you save the business? How many customers do you serve (internal or external)? What is the satisfaction of those customers (if you dont know, ask them!)? When you are asked to to things that you usually dont do, make a log of those things, understand what they are, and how much value they create for you and for the business? Now, you are starting to measure value! Now you can start to see what you are doing for you, your family and for the business you work for or run.

Of course, I am expecting that you be honest about what you do. That should not have to be said, but it is my job to say it. No offense intended, but sometimes a friendly reminder is worth it.

After you have thought about the value you created last year, you can start to outline the goals for 2005. Did you serve one or two customers, maybe your goal will be to serve three? Did you process 1,500 transactions worth $275,000 in revenues so this year you want to do 1,700 transactions or you want to reach $300,000 in revenues. Did you handle 6 extra projects last year? Then see about moving that to 7 or 8. Tangible, reachable, measurable value.

All of us in these days and times worry from time to time about our jobs. The best way to help minimize that worry is to know the value you create. Once you outline what you have done and what you are setting for goals, talk to someone about it. Ask your supervisor, your manager, the vice president the CEO for that matter going over what you have done and what you are looking to do. People who know they create value, and can demonstrate the measure of that value are the people that management and owners know they want to keep.

Take some time this week and review the value you created last year, and set your goals for 2005 and before the end of January, have a conversation with whomsoever you need to to share your thoughts. It will make for a good start to 2005 and put you squarely 'on the team'.