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An open loop Supply Chain

 Supply chain gives an impression that it always needs to be a closed cycle. Raw material should always begin the chain and cash in the bank in form of payment received should close the chain. This was the mantra of supply chain till the time only tangibles were linked to it – now lot of invisibles in terms of securing repeat orders, goodwill, customer delight, value for 3rd parties, business relationship rather than profitability alone have meant that some of the chain need not close – after all. Let some tangibles be left on the table for the sake of a stronger supply chain. We have to give a chance for open supply chain to succeed.

 

Such a strategic investment can be universally applied to both sales and services industry incl. IT services. Post recession spend on support operations have diminished. Even large Clients with deep pockets have resorted to cutting ends and there is a downward pressure on cost of services (read billing rates for IT service industry). Customers are no longer looking at vendors but at partners who can help them save costs at the same time be reliable and ensure no drop in quality levels by virtue of cost cuts initiatives.

 

Locked in cut throat competitive environment service providers are going the extra distance to satiate their existing and prospective customers; however their direction of travelling the extra distance is flawed. Speaking from a purely IT perspective, vendors are providing same with less – word innovation, synergy, customization is being replaced by implementing best of breed solutions which is not always so. Additionally, IT vendors are not dropping their margin requirements as well. This mismatch has thus resulted in mediocre solutions justifying the proverb”if you pay pennies you will get monkey”.

 

There is a tendency for bidders to build a lot of contingency towards risk management and pad it up with a margin which takes cares of inflation in the bid price. Clients select a vendor based on its all round ability to handle deliverables and control cost and also manage risk better. Clients do not rate vendors who pass on all the risk to them and do not mitigate risk efficiently. For a high value or for that matter even a low value contract, Customers always gets multiple bids and so they have a fair estimate of a fair price so it is very easy to customers to identify who is managing risks better. Success of project or products means more to the customer than to the vendor and thus it is imperative the Customer is eventually going to select those vendors who give them the confidence that they are doing so better than their peers.

 

Even the most classified solutions is getting commoditized now, and in an IT service industry their hardly is a tangible differentiator amongst competitors. So no vendors no matter what the goodwill it carries it is getting increasingly difficult to command a premium. Pricing thus needs to improve to secure more orders and companies should start concentrating more on top lines rather than bottom lines. Concentrating on top lines would mean consolidation which is a good thing esp. after a recessionary business environment. If vendor starts concentrating on bottom lines – it is a recipe for disaster at this point of time. Product companies will be sitting on inventories while service industry will be facing unproductive manpower (read unbilled service personnel). Such a scenario creates ill will situation like attritions, low worker confidence and erosion of foundation.

 

In a nutshell vendor companies should consider leaving the following on table for a sustained growth rather than going for a boom now bust tomorrow.

  1. The extra $ towards margin
  2. Commanding any premium as compared its peers
  3. Complicating the solution thus exposing project to large un-mitigatable risks
  4. Padding lot of contingency in cost
  5. Accounting of inflation in revenue accruals

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