1.3 Assess Readiness—Your Own and That of Potential Partners

By winning the World Series, the Cubs proved their greatness. Nonetheless, you wouldn’t bet on the Cubs to win the Rugby World Cup. Such a matchup would be silly. After all, the Cubs aren’t built to play rugby. Yet, many companies try to do the equivalent every day. They come to market with the wrong supply chain. How do smart managers get stuck in such a predicament? Two explanations persist.

1. Wrong Focus. Great ideas spawn companies. But, source, make, and deliver decisions are often an afterthought—they come after marketing, engineering, or finance. No one asks whether, or how, SCM can confer a competitive edge. Market mediocrity results.

2. Poor Scanning. Even cutting-edge supply chains can fall behind the obsolescence curve. You’ve read, for instance, about the woes of some high-profile brick-and-mortar retailers. As the Internet changed the rules of retail, those retailers didn’t adapt. Now they are dying.

By conducting a readiness assessment—the second R—you can avoid these losing outcomes. The readiness assessment is a key weapon in Theo Epstein’s arsenal and consists of two steps. Step 1 is an honest self-appraisal of the team’s current competencies. Simply put, ask, “Do we have the skills we need to play, and win, our industry’s competitive game?” If not, ask two questions:

• Which skills are you missing?

• What do the gaps look like?

By making capability gaps visible, you can prioritize your skill-acquisition efforts. Step 2 is to assess potential partner competencies. Your job, like Theo Epstein’s, is to close the gaps by building or buying the right capabilities. Let’s take a peek into how Epstein leveraged the second R to turn the Cubs into champions.

The key to winning a baseball game is to score more runs than the other team. The emphasis on runs scored has always placed a premium on two player-evaluation metrics: Batting average and RBIs (runs batted in). Sabermetrics argues you should set these metrics aside in favor of on-base percentage. After all, you can’t score unless you get on base—and it doesn’t matter how you get on base (via a hit or a walk). The logic of sabermetrics is simple: By using more-valid-but-less-used metrics, you can acquire the right skills at a lower price. Of course, winning attracts benchmarking, and rivals quickly copied Epstein’s approach. Epstein’s response: Keep refining the readiness-assessment process.

1. Neuroscouting. Neuroscouting uses a computer simulation to make the connection between a player’s cognitive function (recognizing a pitch) and motor skills (swinging a bat). A player who picks up a pitch 5 feet out of the pitcher’s hand will get on base more frequently than players who don’t read the pitch until 20 or 30 feet. Neuroscouting helped Epstein identify Mookie Betts as a top prospect in the 2011 draft. Betts is now a rising star.

2. Wins Above Replacement (WAR). Epstein has grown fond of WAR, a metric that estimates how many wins a player contributes above a replacement player at the same position. Going into the 2016 season, WAR indicated that the Cubs excelled in starting pitching, first base, and third base. But, right field was identified as a liability. To fill the gap, Epstein acquired Jason Heyward in free agency.

3. Predictive Analytics. Epstein is now experimenting with simulations to predict how a given team composition will fare in each game throughout the season. Inputs can be quite detailed and include things like the ballpark where the game is played, time of day, and pitcher-versus-batter matchups.

Beyond helping you close capability gaps, readiness assessment serves another purpose. In 2011, as Epstein’s tenure with the team began, Cubs owner Tom Ricketts asked when the Cubs would be ready to compete for a championship. Epstein’s response: The Cubs would get worse before things could get better. Building a strong farm system and young talent meant that the Cub faithful would need to be patient. Epstein’s plan, however, leveraged the “rules” of the collective bargaining agreement—an agreement that allocated larger draft budgets to losing teams. Losing early to win later enabled the Cubs to acquire players like Kris Bryant and Kyle Schwarber—key contributors to the 2016 championship run.

Readiness assessment is a pivotal part of Zara’s story. Zara, like Amazon, is a rule breaker; its fast-fashion business model is truly game-changing. So too are the supply chain capabilities needed to make fast-fashion work. Compare the Zara way to Gap’s approach (see Table 1.1).

The backstory: Amancio Ortega, Zara’s founder, got his start in the apparel industry as a 14-year-old errand boy. A decade later, Ortega began developing his own designs, reproducing popular styles but with his own twists. He soon realized that if he could bring trendy designs to market quickly—and inexpensively—he could wow consumers. Ortega simply needed to convert concept into capabilities. Readiness assessment provided Ortega the insight needed to build the capabilities that would fuel Zara’s fast-fashion strategy. Let’s highlight two points here.

1. Infrastructure: Capabilities derive from infrastructure. For instance, Zara brings its 30,000 distinct designs from concept to rack in only 14–24 days (a 10× advantage over rivals). To reliably hit this target, Zara sources over 50% of all items from local subcontractors in Spain (over 75% in Europe) and preps all product to be rack-ready in its 400,000 square meter DC called the Cube. Zara’s infrastructure links supply to demand.

2. Decision Processes: At Zara, decision makers evaluate every investment based on how it will enhance Zara’s capabilities. For instance, Xan Salgado Badas, Zara’s head of IT, stuck with an outdated, DOS-based point of sales system (POS) for years because newer systems didn’t offer any strategic capability upgrade. Yet, when Zara figured out how to use RFID to enhance inventory visibility, gain insight into fashion trends, and hasten replenishment, Zara rolled out the technology at a scale and speed that startled rivals (in 2016, Zara bought 500 million RFID chips—16% of that year’s total RFID sales).

Being fast and driving trends pays serious dividends. Customers visit Zara stores 17 times a year (compared to 3–5 for rivals). Customers don’t want to miss out on the trendiest new outfit. They know if the outfit sells out, it may not be back—ever. In effect, Zara has turned customers into treasure hunters, transforming stockouts into a sales pitch. Along the way, Zara became the world’s largest fashion retailer and Amancio Ortega the world’s second-richest person. But, that success means Zara wears a bullseye on its back. The Zara team knows that readiness assessment and capability development must be a lifestyle, not an event. If Zara isn’t always getting better, a rival like BooHoo or ASOS might make Zara’s version of fast fashion obsolete. Just like the Cubs, Zara (and you) are only as good as you are ready.