The Devil's advocate (Supply Chain Antipattern)

Notebook-as-a-book illustration

By Joannes Vermorel, June 2015

It is said that customers are vendors’ best advocates, but is it wise to be the devil’s advocate?

Alias: enterprise vendor from hell

Category: management

Problem: the company has signed a large deal with an expensive solution vendor to improve its supply chain performance. Typically, an enterprise software vendor also sells a combination of additional consulting services along with their primary software solution. The vendor keeps under-delivering, and yet, the company keeps inflating the vendor budget over time, while deadlines are constantly being missed.

Anecdotal evidence: if the claims of the enterprise software vendors were to be believed, profits generated by their solution should grow faster than processing power as predicted by the Moore’s law.

Context: the management is desperately seeking a solution to improve its supply chain performance. Time has been wasted on failed internal attempts, and they feel that despite their extensive efforts to find a solution, the whole initiative is stalling. The challenge is complex, with many different variables and constraints. Complicated demand patterns are also involved, and nobody has a clear opinion on what would be a reasonable statistical approach to tackle the problem. Management is now convinced that the resolution of the challenge requires an expertise that clearly goes beyond what the company’s internal teams can deliver.

Supposed solution: the management has met with an enterprise vendor, and everybody was immediately seduced by the vendor’s proposed solution. The vendor was promising an easy path: all the complexity would be handled by the vendor himself thanks to their unique technology and methodology. Owing to this vendor, the management has finally found a way to delegate the entire challenge to an external party; a challenge which was too heavy to bear. The employees are enthusiastic about the solution as it empowers them and seems to truly respond to their aspirations.

Resulting context: A lot of money has been spent on the vendor, and yet the results are mitigated at best. It’s not even clear if the supply chain performance has really improved as a consequence of engaging the vendor. Overstocks and stock-outs might have been marginally improved, but at the expense of a fairly complex set-up that has been keeping entire teams busy for months. Yet, at the same time, the vendor did not challenge the client’s vision at any point; the vendor kept telling the client exactly what the client wanted to hear. Since everything that was communicated by the vendor was basically the echo of what the company was hoping to achieve, despite of all the promises to leverage revolutionary technology and methodology, nothing really new emerged from the initiative. If the vendor was to disappear tomorrow, the company would simply go back to where it started before closing the deal with the vendor, turning the entire initiative into a pure sunken cost. Deep down, several managers are fully aware of the situation, and yet, as they have been the early supporters of the vendor, their position would be brittle if the initiative was to be publicly acknowledged as a failure.

Seductive forces: The vendor truly excels at the art of seduction. Its representatives include senior experts with impressive track records, typically associated with very large companies. At some point in their careers, some representatives of the vendor in question might even have been executives of company divisions that were larger than the company itself. The vendor sales team also includes PhD holders. Most of the technical comments they make remain largely indecipherable for the company management, but clearly these PhD holders seem to have an understanding of the business that goes vastly beyond their own expertise. The “all-in-one” package offered by the vendor was exactly what the management was after: namely, relief. The vendor also excels at using the exact tech buzzwords that seem to be driving the whole industry nuts at the time. Employees who have been consulted on the case were also immediately seduced: the vendor was keeping their usual operations in place just as the employees were used to them, just improving the perceived friction points.

Why this leads to failure: improving the supply chain means that changes are inevitable: tough, stressing, unrewarding changes. For management, change typically means acquiring new skills, frequently new hard technical skills, while their entire careers so far have been characterized by a constant progression towards gaining soft skills, required to manage larger and larger teams. The vendor promises a revolutionary solution, but as they have also sold to the management that the solution will be painless, what actually gets delivered is conformity and status quo (albeit with a slightly better package). Fundamentally, the vendor acts as an echo chamber for the wishes of the management and the employees involved. However, while echoes are comforting, there is no learning because there is nothing new to be heard. Also, while the idea of “empowering” employees sounds enticing, most tangible supply chain improvements come with a higher degree of automation (either physical or logical) which directly threatens many entry positions within the company. By carefully avoiding any tough changes, the vendor also carefully avoids any serious improvements.

Positive patterns to address the problem: the best way to address the “vendor from hell” problem is to better select the vendors in the first place, and to be extremely wary of enterprise vendors who are, by trade, experts in corporate seduction more than anything else. Then, for a company who is unfortunately bound by such a vendor, the solution is to foster a particular mindset: tough on problems, soft on people. There is no other option but to part ways with the vendor, and to accept the initiative as a sunken cost. Rather than sanctioning the people responsible for the project, the company must strive to learn as much as possible from this experience, making it known internally, so that history doesn’t repeat itself.

Example: Fabrikam is a small Spanish brand with its own retail network which includes about 100 stores. Their market is fairly large, and they feel l like they are a relatively small player in the field. Like pretty much everyone else in this market, the bulk of their production is now being done in China, with entails fairly long lead times. Also, while Spain still represents above 80% of their total revenue, Fabrikam has already started expanding to other neighboring countries, most notably Portugal and France. The long lead times combined with a growing distribution network is putting a lot of pressure on the supply chain of the company. Frabrikam feels that its supply chain practices aren’t up to the challenge to allow them to become a truly pan-European player. In particular, all their predictive analysis is “home-made”, and the consensus is that accuracy is far from what it should be. Determined to improve their supply chain practices, the company starts off by launching a few proof-of-concepts (POCs) with several different vendors. Little effort is invested in the proper set-up of these proof-of-concepts, and even less effort is made in trying to understand the technologies involved and the results they generate. Internally, several dedicated long-time employees that are valuable to the company are still pushing for in-house solutions. But without the necessary resources or real in-depth skills, these in-house developments tend to be stalled.

At some point, the executive team decides to organize a trip to the Silicon Valley, the “Mecca” of the initiation. The goal is to challenge their perspectives by meeting a series of companies delivering all kinds of technologies that are considered as cutting-edge in the USA, and most still inexistent in Europe. During their trip, the team meets with Brian from Genialys. Before joining Genialys, Brian was a Sales VP of the North American retail division in a very large company. Actually, the North American division alone is larger than Fabrikam itself. Genialys was founded 18 months ago by 3 top executives of Delphis, a tier-one enterprise vendor company, notoriously known for having the highest prices on the market. Two out of the three Co-Founders hold PhDs from the Ivy Leagues. Several hours later, Brian arranges an onsite meeting in Spain with the Fabrikam executive and founding teams as they are still visiting the Valley.

The meeting goes exceedingly well. Genialys has a vision that completely embraces and even goes beyond the objectives of Fabrikam. Moreover, it’s the USA, not old Europe, and business happens 50 times faster over here; or so the story goes. Genialys has raised all the necessary funds, and they have a team that can get started within hours. Genialys will make Fabrikam their flagship client for Europe. The price point of Genialys is stupendous, quite similar to the one at Delphis. The management is convinced however that Genialys is going to redefine the state-of-the-art as far as supply chain optimization is concerned. Within 6 months, payback will amount to millions of euros per month and make up for the fees paid to Genialys. If you want the best, you have to be ready to pay the price, thinks the management of Fabrikam.

Fast forward one year later, the project drags on. Genialys has correctly delivered the budgeting component of the project, which is mostly a data entry component associated with a couple of straightforward calculations. All the predictive aspects that were the most pressing for Fabrikam are however still “in progress”. Genialys experts have been routinely flying from the West Coast to Europe, but they are now growing tired of these travels. The Spanish teams are still struggling to grasp how the advanced statistical methods being rolled out by Genialys truly address the supply chain problems they are facing. Millions have been locked into this initiative, but there is still nothing in production. Management is getting nervous, but whenever the atmosphere starts to get tense, a senior team is dispatched by Genialys to Fabrikam’s head office in Spain, which reassures the management that everything is on track.

Results are still shining by their absence, but fees keep getting paid to Genialys nonetheless.