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In the last article, it was identified and established that Supply Chain is the key enabler for business growth. It is time now to understand what measures within supply chain drives supply chain excellence. As shown in the below figure, five elements contribute towards supply chain excellence. It starts with People, Quality, Velocity, Cost, and finally Agility to react to the dynamic business environment.

SC Excellence 1

In this article let me share my experience about how people can effectively contribute to the success of the business.

People:

Bill Gates once said, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.” Success is not a permanent partner, success is a visitor in some cases, and hence, people may have to pursue the path of continuous improvement to sustain in this challenging environment. “Success consists of going from failure to failure without loss of enthusiasm”. If one critically examines the only difference between successful people and the rest is nothing but lack of will to succeed.

In order to be successful in business we need a leader who can articulate the vision and goals of the organisation and along with him we need group of people whom we can call them as cohesive team. In order to be a successful team we need few critical attributes and they are:

Engagement – It is a challenge to any organisation to create an environment where employees who are part of the cohesive team understand the organisational goals and commit to the organizational vision created by the leader. Job engagement and organisational engagement leads to employee engagement. Happy employee is a productive employee. Hence, it is a key measure.

Leadership – It is an old school of thought that there is only one leader in the organisation. Yes, there is one leader at the top and he/she needs leadership support from many functional silos. It is essential that these emerging leaders should be trained in the areas of Communication; Motivating teams; Team building; Risk taking; Vision and goal setting. Last but not least is to recognize and reward the team’s performance. Say at least thanks for their contributions.

Think outside the box – Today’s business is dynamic, volatile and challenging, and the ability to improve continuously is very critical to the success of the organisation. The core driver to make your team to think outside the box is to deliver competitive differentiation in the market place. Due to product proliferation, there is no dearth of choices to the consumers, the product has to be unique and deliver total customer experience. This process is not static and it is continuously evolving. Unless one develops ideas and transforms them into reality that meets tomorrow’s customer needs, it would be highly challenging to survive in the market. Thinking is unlimited, there is myth that humans use only around 10% of their ability to think. It is not thinking that matters, Lateral thinking is the need of the hour!

Team Work – Success of any team depends upon the team work and team’s collective strength and wisdom. The best teamwork comes from group of individuals who collectively agree to work independently and together towards one identified organisational goal in unison. Let us not forget ““The strength of the team is each individual member. The strength of each member is the team.” In short WE = Power of Success!

Change Management – “Change is the law of life. And those who look only to the past or present are certain to miss the future” John F. Kennedy. The world is changing in other words, it is evolving and if you live in the past and deliver a product belonging to yesterday for tomorrow’s world, the outcome would be disastrous. Obviously change is driven by a vision, get your vision right, build a team that could deliver your vision, empower the team, celebrate short term successes, and most importantly communicate and deliver the change message periodically. Change ushers exciting opportunity and at the same time could deliver loss, disruption or threat to some organisations. How such change process is managed can be the difference between surviving and thriving in a work or business environment. Change management should be developed as an inherent characteristic of any organisation who would like to survive and thrive in this world.

Perseverance – As mentioned earlier success is a visitor if you fail to pursue it consistently, it will desert you. In my opinion one may face many defeats in our journey in search of excellence, but you should never get defeated. The defeat teaches the critical lessons to how to succeed. Whereas success only makes you complacent. In order to manage sustainable success, it is absolutely necessary to be persuasive. Abraham Lincoln once said, “I am a slow walker, but I never walk back.”

Continuous Improvement – “Excellent firms don’t believe in excellence – only in constant improvement and constant change” Tom Peters. We can write tons of information how we can achieve continuous and sustainable improvement through the leadership vision and team work. Let us examine a case study which delivers invaluable information how continuous improvement in supply chain delivers competitive advantage in the market place.

Supply Chain Excellence2
Note: Please double click the image to see it large.

The human being is yet to invent an automated system that could foster sustainable continuous improvement in any field. It is all driven by the committed teams all around the world. Team of individuals is not a system, it is the group of people with commitment to make tomorrow a bright one and with emotions to win with persistent efforts and with a faith to turn hopeless failure into glorious success.

Any business organisation must have a clearly identified unique core objectives which differentiates the organisation with competitors. The so called differentiation comes through innovation of the people in the form of enhanced technology, improved quality, cost competitiveness, total customer experience. All these factors are articulated by a leader and implemented by the group of people whom we called an integrated and cohesive team.

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A decade ago people used to believe that people, process and technology are the three Business enablers.  John F Kennedy once said, “the Chinese use two brush strokes to write the word ‘crisis.’ one brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger–but recognize the opportunity”. In today’s world globalization propels the business growth and at the same time, presents massive challenges in the form of supply chain.  This phenomenon called globalization impacts the economy, product life cycle, society, environment and personal life too.

I am not sure if anyone measured the increase in competition due to globalization, but surely the globalization has immensely improved sustainable competitiveness in many organisations.  In order to be competitive in this world of uncertainties and volatile market conditions, we need a successful formula that could deliver and address challenges such as global reach, price competitiveness, agility and rapidity to reach the market, improved production and supply lead time, make vs. buy decisions, identifying non-core activities and outsourcing, improved operating profit after capital charge, on top of all this, EVA, total customer satisfaction and happy investors.  The role of the supply chain has never been as important as it is in today’s globalized economy. Supply Chain speed and agility have become two key levers for competitive differentiation and increased profitability. Today’s supply Chain successfully handles all the challenges identified above and converts those challenges into opportunities in order to deliver competitive advantage to the organisation. And it is proved time and again  that Supply Chain is the core business enabler apart from people, process and technology.

Today there is no dearth for technology, we have variety of technological tools that offer variety of automation, the need of the hour is the people who can understand the business dynamics and customer expectations and develop effective supply chain processes that adds value and delivers competitive advantage and sustainability to the business.

Supply Chain delivers broadly four competitive advantages to the business and that includes, cost benefits, flexibility benefits, quality benefits and last but not least is the lead time benefits.  These benefits are driven through Planning, Continuous Improvement, Quality (standard work to achieve consistency) and the ability to reach global customers faster and efficiently.

The below figure shows the supply chain functional pyramid:

Pic1Whereas the business is not a charity, in order to be successful, it has to generate profits keep the shareholders happy and encourage them to invest more money into the business.  George W Bush rightly pointed out that, “you can’t do today’s job with yesterday’s methods and be in business tomorrow”.  And that is where we need effective, advanced and cutting-edge supply chain processes and efficiencies.  A good business leader should create a vision, articulate it passionately and drive towards completion.  Any good vision will have four “P”s in it, people, process, product and profitability.  If you look into the business objectives pyramid, you will find all these elements in one form or the other.

The below figure shows the Business Growth and Prosperity Pyramid:

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The Alignment:

In the month of December 2013, Hitachi Consulting group report (published in Europe) indicated that 80% of supply chain managers do not see their supply chain as an enabler of business strategies within their organisation.  Greg Kinsey, VP of Hitachi Consulting, said: “The results from our survey make one thing very clear – disconnect between a company’s business transformation strategy and the day-to-day management of the supply chain remains a serious, yet hidden, problem for many organisations.  Hence, it is absolutely necessary to align the supply chain transformation strategy with the business strategy in order to excel in today’s dynamic, challenging, volatile, confusing, compelling, and exasperating world of business.  The below figure explains the alignment between supply chain transformation and business growth and prosperity with right people, processes and with the help of technology.

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It is very critical that the supply chain transformation is well aligned with business growth and prosperity strategies.  The below figure illustrates the path for the alignment.

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Organizations may have to recognize that the supply chain transformation and alignment with the organisational goals and objectives delivers a competitive market differentiation.  The uniqueness sells; let us not forget that uniqueness’s core objective is to create that magic of alignment between supply chain and organisational goals.  In order to achieve the short and long term goals the transformed and aligned supply chain will have critical influence on business and organisational outcomes and to large extent on the shareholders and customers.

It is worth concluding this article with 7 simple supply chain lessons taught by Steve Jobs of Apple Computers (Source: Supplychain247.com)

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Globalisation 4

In my opinion Logistics industry can be described as wheels of Globalization and key to the market expansion and competitive product availability to the growing global consumers. Dynamic business conditions and confronting economic conditions are driving globalization. Globalization is resulting due to expanding markets, exploding retail market, product proliferation, ever changing needs of customers, economic downturn, cost pressures, technology, cultural integration and government policies around the world. It would be wrong to assume that globalization influences economy and trade only; we are seeing integration in the areas of culture, media, education, research and development, tourism and even climate change.  On political front, we see collaboration and collective approach in addressing daunting challenges we face today.   Globalization will make our societies more creative and prosperous, but also more vulnerable and in transforms economies more competitive.

Let us review some vital statistics (Source: Armstrong & Associates Inc.).  First let us review the region wise Logistics spend vs. 3PL revenue (2012):

Globalisation 1

Obviously Asia Pacific Region heads the chart in all categories if we exclude remaining other countries which were consolidated under other countries.  It would be worth looking into Asia Pacific region by country in order to identify the growth countries.  Top five are highlighted here under:

Globalisation 2

If we look globally, it would be interesting to compare the numbers and easy to identify the globalization impact on different countries:

Globalisation 3

It would be very interesting to analyse 2013 numbers as the world trade is not promising.  World trade is expected to grow by 2.5 percent this year and 4.5 percent in 2014 (source: The World Trade Organisation).  More and more companies are developing agile supply chains and compressing product supply lead time and at the same time reduce the cost of production.  In order  to achieve all these goals, outsourcing supply chains is one of the solutions.  According to CAPGEMINI Consulting 2014 report 72% of the shippers are planning to increase use of outsourced logistics services and whereas the 3PL companies believe that 78% increase in business.  Let us hope economy responds well in 2014!

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Leadership Pyramid Showing Vision Values Empowerment and Encouragement

Establish positive attitude and demonstrate your integrity to engage the team; and engagement leads to commitment and commitment results in enhanced productivity and improved productivity produces economic benefits to the Customers (Superior Quality and Cost Effective Products), Shareholders (Improved return on Investment), Employees (Career Growth and Job Certainty) and to the Organisation (Improved Brand Equity and Superior Financial Results).  Supply Chain is a team game and without cohesive and collaborative team you go nowhere.  In order to achieve all this; one should have the right attitude.  Someone appropriately commented that, “a bad attitude is like a flat Tyre, you can’t go anywhere till you change it”.

Positive attitude leads to great leadership and great supply chain results (Source: Gartner Supply Chain Top 25)

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last 4 years comparison top supply chain

 

 

 

 

 

 

 

 

 

 

Believe in creating a successful future and not predicting the future!

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Warehousing Management is part of a logistics management business process, which is itself is a facet of supply chain management. The general perception of the Warehouse is simply a place to store finished goods; semi-finished goods and raw material, inbound functions that prepare items for storage and feed manufacturing line and outbound functions that consolidate, pack and ship orders in order to provide important economic and service benefits to both the business and its customers. In my opinion Warehouse Management (WM) is not given required attention with the advent of Supply Chain.   Warehouse Management is considered as back-end job.  In my opinion, the WM is fundamental to supply chain success.  The flow of material is very critical to supply chain and the flow is seamlessly managed by the Warehouse.  WM is a science and an inefficient Warehouse or a process could cause disasters to the business.  This is a rudimentary attempt to familiarise the WH functions and its intricacies.  Hope you enjoy the same and I sincerely appreciate your feedback.

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Third-Party Logistics Study 2013 on the Logistics Outsourcing Trends was released.  I would be focusing on some of the elements outsourcing-1of the findings to add my perspective to Logistics outsourcing. Outsourcing is a magical word that pretends to address many complex issues of reaching the product to the end user.  The reason I am using the word pretends due to mixed responses received from the end users known as shippers over a period of time.

In spite of financial downturn, the global revenue of 3PL operators is growing and in my opinion the downturn could also be one of the reasons.  In these difficult days, shippers would aim for cost savings and look for a partner to share risk and avoid capital deployment. And this action could trigger outsourcing. However, organisations that have successfully developed and implemented effective supply chain risk mitigation plans often apply new thinking to traditional risk mitigation strategies. About 65% shippers have indicated that they are increasing their use of 3PL services than returning to insourcing (22%) some 3PL services. Nearly three in five (58%) shippers are reducing or consolidating the number of 3PLs they use.

According to Armstrong & Associates 2012 study the global revenues of 3PL operators have risen by 13.7%.  The gains are mostly recorded in Asia Pacific Region (21.2%) and followed by North America (7.2%).  Whereas regions such as Latin America recorded impressive growth of (43.6%) but on a low revenue level and this indicates increasing trends of outsourcing in Latin America and Other Regions.

When we take a critical look at the logistics spend by the shippers.  Predominantly, the logistics spend is heavy on transactional activities such as Transportation and to an extent on warehousing operations.  The outsourced logistics spend is consistent around 30 to 40% except in in NA.  The logistics expenditure as a percentage to sales revenue seems to be reasonably consistent across all the regions around 10 to 15%.

Outsourcing 1

When we look at the return or benefits to the shippers again the focus is on economic factors.  The cost savings was around 15%, Inventory Cost Reduction around 8% and Asset deployment reduction at 26%.  Not to forget a modest productivity improvement in the form of 7% improvements in order fill rate and 5% improvement in order accuracy.  Again the focus is very much on transactional outsourcing.

Supply Chain Innovation

Innovation could be defined as creation of improved product, process, technology or human resources (improved skills) that could eventually deliver gains to the consumer.  Supply Chain is a work in progress in my opinion.  Continuous improvements in the areas of process, technology and people (skills) are delivering the supply chain innovation.  Apart from the three I have mentioned, the new improvement area is outsourcing.  However, it was noticed that innovation is becoming a challenging as the global economy is becoming volatile and 3PLs becoming more conservative and whereas the shippers becoming more aggressive.  The key to the innovation through outsourcing is collaboration.  The relationship between the shipper and the 3PL should be transparent and behave as true stakeholders in the business.  Lack of openness could kill the relationship and thus innovation.

According to 2013 Third Party Logistics Study, “the openness of some shippers to more innovative 3PL-shipper arrangements appears to be declining somewhat; “gain-sharing” between 3PLs and shippers is down and interest in collaborating with other companies, even competitors, to achieve logistics cost and service improvements has also declined slightly since last year”.

What drives innovation in an outsourced environment?  As mentioned earlier, Relationship and Trust plays a big role, People who create innovative ideas and deliver them, Technology which enables innovation, certainly collaboration between the shipper and 3PL, transparency and effective communication and last but not least is the financial incentives.

Outsourcing 2

The above study concluded that, “Shippers and 3PLs can facilitate supply chain innovation by leveraging organizational drivers such as fostering collaboration through structure, relationship governance, and embedding innovation into the organizations as well as technology focused drivers: advanced IT and mobile solutions, data and analytics, and social media.”

What calls for innovation?

Volatile economy, Increasing Competition, Uncertain Demand due to product proliferation and Supply Chain Disruptions are the main reasons organisations looking for continuous improvements in order to survive in the business and excel.  If we review the above mentioned factors some of them are controllable and some are not.  Economy behaviour cannot be influenced; Competition will continue to grow due to increasing globalisation; and Product proliferation is driving the product mix challenges resulting in uncertain demand to some extent.  Whereas, supply chain disruptions could be avoided if we plan well and innovate.  According above mentioned study, Spirit AEROSYSTEMS, Kansas saved millions of dollars inventory and avoided injury to workforce due to F3 tornado hitting their facility (2012) due to proactive thinking and that is nothing but some sort of innovation.

What is driving the Supply Chain Disruptions?

Supply chain complexity and “interconnectedness” to address the globalisation is increasing rapidly at a time when the risk of disruption caused by extremes such as geophysical disasters, increasing terrorism attacks is mounting. The above study reveals that natural disasters the top reason followed by Commodity Volatility, Labour availability, Energy prices and supply of raw material at the required time.  No doubt, Transportation infrastructure plays a vital role in disruption by not making a product available at the right time.  Governing rules in countries like India and China making the supply chain vulnerable. The political system is also causing disruptions and Terrorism and Piracy is low on agenda but high on complexity.

Human Resource could cause multiple problems that could result in supply chain disruptions.  The first one on top of my head is the skills shortage.  According to the world economic forum study on Outlook on the Logistics & Supply Chain Industry 2012, Logistics companies and trade associations around the world are reporting problems in obtaining enough qualified staff. Over the past year, studies done in India, Korea, China and the United Kingdom have confirmed that there is a skill shortage in logistics.  The other side of the coin is the disgruntled human resources could cause phenomenal financial damage to the supply chain and the business. On November 27, 2012, approximately 800 clerical workers at the Los Angeles and Long Beach ports went on strike.  At first glance, it doesn’t seem as though a clerical strike should have a significant impact on port operations, but the 10,000 unionized dockworkers who also work there refused to cross their picket lines.  And thus the largest port operation in the United States, representing approximately 40% of the value of imports brought into the U.S., ground to a halt.  The economic cost of the strike was estimated at $1 Billion per day.

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Risk Mitigation

We should be able to mitigate every risk if we understand the problem and source that is causing the problem. In order to avoid any supply chain risk it is very essential to have visibility to your supply chain.  According to a report roughly 30% of manufacturers still lack Tier 1 visibility, while over 70% lack Tier 2 or Tier 3 visibility.  According to Aberdeen Group 2011 Supply Chain Visibility Report, best-in-class companies are likely to have online visibility into supply chain disruptions.  Further, the same report revealed some of the actions taken by the supply chain leaders due to visibility includes, Streamlined Processes for Easier Monitoring, Usability & Efficiency (66%); Integrated Supply Chain Transactions & Costs into their Operations (60%); Took Steps to Improve the Timeliness & Accuracy of Supplier Data Exchanges (46%); and Have Increased B2B Connectivity & Visibility into Supply-side Processes (31%).

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Collaborative partnership such as outsourcing is another step towards supply chain risk mitigation.  It pays to invest on training and development of human resources.  In my opinion it is a worthy investment as long as one could retain the workforce to reap the benefits of the skills upgrading.  In order to address risks arising out of suppliers, supplier scorecard and collaboration goes a long way addressing quality and velocity disruptions to supply chain.  As mentioned earlier, one should understand the end to end supply chain and that is possible through business process mapping and developing standard work to address process related uncertainties.

Summary:

Outsourcing 5

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Managing supply chain is increasingly a demanding task of satisfying the customer and the shareholders. Supply chain professionals worldwide have a daunting challenge of managing a global supply chain aligning with the business needs and financial downturn adds another dimension to the complex challenge structure. All agree that supply chain manager’s primary task should be apart from keeping customers or stores properly stocked and deliver the perfect order every time, they must balance the need for low costs, proper inventory levels and maximum service levels. They must ensure that supply chain management is an integral component of the company’s strategic direction and plan to create and maintain a competitive advantage.

Apart from the above-mentioned challenges and tasks of a supply chain manager, we have few more issues to tackle in the modern world and they are Globalisation; Terrorism; Product Proliferation; Scrambled Merchandizing and Customer Retention.  In order to balance all tasks and counter all challenges, we need a process and that is called Sales and Operations Planning.

Sales and operations planning (S&OP) is an integrated business management process developed in the 1980s by Oliver Wight through which the executive/leadership team continually achieves focus, alignment and synchronisation among all functions of the organisation. The S&OP planning includes an updated forecast that leads to a sales plan, production plan, inventory plan, customer lead time (backlog) plan, new product development plan, strategic initiative plan and resulting financial plan. Plan frequency and planning horizon depend on the specifics of the industry. Short product life cycles and high demand volatility require a tighter S&OP planning than steadily consumed products. Done well, the S&OP process also enables effective supply chain management (Source: WIKIPEDIA). S&OP is critical for any company that is targeting strong performance.

Let us understand global challenges faced by many organisations in different regions in order to understand how S&OP can help us to counter them.S&OP 1

As explained above more or less all regions in the world face some unique challenges such as demand for velocity improvement, faster and accurate order fulfilment, global supply chains, the pressure to reduce costs, and last but not least is to improve top line revenues.

Planning can be classified as two different methods, the first one deal with unconstrained planning.  This means typical material requirement planning, which answers the question of what is required to meet the demand without any constraints.  The second method is constrained demand planning.  This method with the help of a tool measures what can be produced with a given constraints and available resources.  Let us see who is good at unconstrained planning? EMEA and all other regions are doing very well both in responding to the unplanned event and also in an unconstrained environment. In my opinion, the most disappointing factor of the survey is that the best in class results in the case of responding to unplanned event or demand and conducting a gap analysis and initiating corrective actions indicate there is a lot of work on hand.

Constrained planning and the ability to respond to the unplanned demand in a timely manner indicate the S&OP 2level of supply chain flexibility and supplier collaboration, apart from manufacturing nimbleness.  Living with a problem and addressing the problem through gap analysis distinguishes the supply chain.  The world is the true classroom. The most rewarding and important type of learning is through experience,  there is only one thing more painful than learning from experience and that is not learning from experience.

But how many organisations are involved in going through the S&OP Process?  EMEA seems to be heading the group at a Macro level.  The S&OP success largely depends upon the SKU level measurement, all other regions are better compared to EMEA.  What is disappointing is that no other region is close to the best in class.  S&OP process is driven by the people and it is very critical that they understand the importance of the process and implement it effectively in order to drive the organisation in the right direction.  It is heartening to note that all other regions have done better than best in class in understanding the business systems and utilising them effectively.  Individual or functional (departmental) goals and objectives sometimes derail the S&OP process and that could result in heavy inventory and disappointed customers and shareholders.S&OP 3

It is needless to add that technology is very critical for the S&OP Planning and execution.  What is sad to know is that many organisations do not invest in specialised IT tools to drive the S&OP/Demand planning, they rely on ERP tools.  This was very clearly established by the survey undertaken by Aberdeen group. Demand forecasting in a retail and FMCG markets and within PUSH supply chain area is challenging due to product proliferation.  You need a specialised tool that could provide a variety of options and models with regard to your future demand.

North America organisations are heavily wedded to legacy systems compared to other regions.  It is sad that a matured market such as North America depends on the legacy and old systems and lacks the emerging market’s capability.  Further, NA does not boast an integrated ERP solution in place. It is clearly evident that emerging markets are more adventurous in investing in technology which could lead to better planning, less inventory, improved customer service and increasing top line revenue with the attractive bottom line.

S&OP 4We have made an attempt to understand how the world is managing S&OP business process.  Before I sign off, let me spend few minutes to explain the current challenges of S&OP process globally.  The first challenge is to align the process to the business strategy; we have often seen both heading in the opposite direction. The business ownership for the process, it is quite common to see S&OP as a sub-function of Supply Chain with more emphasis on managing supply than the demand.  In my opinion, the biggest challenge is managing the change (fear of failure).  This is very commonly seen in constrained planning situations.  Many people believe that S&OP process is all about the forecasting the demand but very few understand that it is a process to align the operational excellence with business needs in the form of customer demand.  Many do not see the value of S&OP in containing the inventory carrying thus resulting in cost reductions.  In order to address this issue what we need is executive governance.  The executive team should understand the importance of S&OP process and drive it effectively.  It is quite common to see Management team is involved in approving the outcomes and not driving the outcomes.  It would be effective if executive management drives this process aligning with organisational goals.  Another commonly noticed challenge is the new product launch.  Any product launch should go through product lifecycle management (PLM) process and all elements of PLM process should be thoroughly reviewed before the launch, if not the S&OP process will not help in achieving the product success.  The last but not least is connecting the planning to the execution.  Many organisations are good at planning, when it comes to execution, to a great extent many are not successful.  S&OP is only a business process, in order to make it successful, business discipline is critical and governance is paramount.

Cartoon Source: Cayuga Partners

SOP

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