Challenges and opportunities in today's supply chains
The major objectives of supply chain management from the customer point of view are very simple:
- Deliver what we want
- Deliver how we want it
- Deliver with a smile
- Charge a reasonable price for it
- Be prepared with service to stand behind what we already paid for
Nothing fancy there.
All the complexity comes behind the scene
It happens when a company tries to deliver on the customer expectations, and make a dollar while doing that.
That is when supply chain has to work hard to cut out The Eight Wastes in order to optimise profitability.
That is where supply chain has to integrate all the background functions and processes, as well as key external parties into one cohesive whole.
Integration and optimisation are the two key hallmarks of good supply chain management.
To serve the customers the best it is theoretically possible to serve them individually with customized bundles of goods and services.
However going too far in customization would ruin efficiency of Supply Chain Management.
Challenges and opportunities are always intertwined. Today, key challenges and opportunities for supply chain embody holistic business transformation.
There is a lot of talk about VUCA – Variability, Uncertainty, Complexity and Ambiguity – when strategists discuss the business environment today. It is a bit ironic that so many military terms get incorporated in the strategy parlance during the time of duress.
A New Organisational Model - The Biggest Opportunity And The Biggest Challenge
One thing is clear – that old organisational models are not adequate anymore. New challenges need new responses. Things are changing, moving, and old business models are not working anymore. That is why I proposed even a new organisational model in my book The 5-STAR Business Network.
It is a well-known aphorism in the circles of architecture that form follows function. In other words, the structure of a particular unit, in general, evolves to facilitate the functioning of that unit.
Moreover, if the form does not match the function, the structure will change or the function changes over a period of time.
While conducting research, we examined the organisational structure of more than 50 companies; almost all of them looked variations of the generic structure given in the figure below:
TRADITIONAL ORGANISATION MODEL
The titles in the boxes, as well as placement of the boxes, vary quite a bit; however, most companies still agree this is the best way to look at how they are organised to serve their customers’ needs.
At the same time, most of these companies have evolved within the last 2 decades; their functioning has become almost entirely customer centric with their customers’ priorities driving most of the business workings.
In our work with corporations, I have frequently found that the supply chain structure frequently results in limiting the effectiveness of the organisation. The traditional structure of the organisation shown above frequently stifles customer responsiveness and innovation.
In the modern outsourced-globalised world, a traditional structure with very strict hierarchies and internal walls between departments is a hindrance rather than an aid for achieving success in business transformations.
instructive case study
There I was, ploughing through lists and lists of the plants, the products, the distribution locations, the customers and the services of this fast-moving-consumer-goods company. Impressive they were, but also painfully complex.
A complexity that had accumulated gradually in bits and pieces over a number of years, nay, decades. I was working on a client’s business transformation project, a while ago and the experience encapsulated, for me, perfectly just how arduous the process can be.
The company had multiple plants around the planet, some employing up to 3,000 people. At some places, even the entire local economy was dependent on the plant. In aggregate, These plants were producing more than 8,000 products, serving customers in more than 10 countries globally.
The biggest thorn in the bushes was the current low utilisation rate of these erstwhile manufacturing powerhouses. And this thorn had been there long enough to turn a minor scratch into a major haemorrhage, which was now quite visible in the press in terms of low profitability and falling share price.
The company’s current CEO and his executive team believed that the time was just right for a major makeover.
The previous management team had earned disrepute in press, and had left under a cloud due to their tendency to sweep the dirt under the carpet. The entire manufacturing footprint had to be upgraded from the regional network to an integrated global network. Stakes were high; morale, understandably, not as high yet.
“Two things will never change: the will to change and the fear of change.” It is not hard to see why the older and more established you are, the harder it is to change. For some, transformation is even a heavier word to swallow. Yet in nature, caterpillars undergo the metamorphosis to become butterflies.
Sweet fruits of transformation they are, but who says it is going to be easy? Especially for businesses, transformation is a coordinated effort across different organs, each of which is like a living ecosystem itself.
We were able to restructure the entire global supply network, expand high performing manufacturing plants, close redundant plants and add a nearly twenty-fold value above the project costs. We were able to do that by modularising the transformation project these its five critical components: physical (infrastructure), informational (system), process and service, financial, and strategic.
In today’s hypercompetitive world of consumer electronics, Apple is a standout among peers as great as Sony, Samsung, Panasonic, Motorola, Nokia and Dell. With convergence, all of these companies are vying for their share of consumer wallets with increasingly similar looking products which do similar things.
What did Apple do that its market value now nearly surpasses Microsoft’s? How did it manage to get over entrenched competitive advantage of companies such as Sony, Motorola or Nokia?
Our work in global supply network strategies and supply network design has convinced us that a modern distributed organisation needs to look at redesigning its explicit structure to keep up with the realities of the modern world. The business world has changed tremendously in the last 20 years. A typical supply chain now runs across multiple continents seamlessly, through boundaries of several organisations, to finally serve a customer with a unique product. To do so, organisations have created de facto structures, which are far different from the traditional structures that they have put in their organisation charts.
The purists might argue that this does not really matter if the organisations are already acting in accordance with a de facto structure - an argument which holds some merit. However, people who make up an organisation respond to the explicitly shown structure with much more enthusiasm and clarity that to a de facto or mutually understood structure. I believe that organisations should formalise their de facto structures and use them to gain further competitive advantage. For this purpose, we have created the following model:
DIGITAL SUPPLY CHAIN ORGANISATION MODEL:
The customer centric model shown in Figure 2 starts with customers at the apex of the organisation. Clearly, it is the customer’s need which the organisation is trying to serve and aligned to this customer is the sales team, which is in direct contact with the customer all the time. The function of the sales team is to have intimate understanding of the customer needs, customers’ usage of its products and their demographics, psychographics and profile. Only then can an organisation create successful products, which will gain wider acceptance in its customer base.
An organisation can outsource almost everything it does, but it can never outsource its sales. Sales are a fundamentally, integral part of an organisation’s structure. Virtually everything else but sales, could be done outside the organisation. However, two other key functions which are equally important and support the sales teams and also customer phasing are marketing and research & development. Between them, these three - sales, marketing and research & development - form the top tier customers’ needs are met seamlessly without any visibility of where any of these activities are actually carried out. It is interesting to note that this customer centric model merely illustrates the actual structure that most modern organisations have evolved into.
kEY CHALLENGES AND OPPORTUNITIES in today's supply chains
- What is driving the need for change in your company, and what is the vision for a changed organisation?
- Within the new vision, what are the trade-offs – between costs and service levels, between various drivers of costs and between customers preferences and how to make those trade-offs profitably?
- What are the key leverage points – how can you get the best transformative results in the shortest period of time?
- What will the new business model look like?
- How can you define this model in great deal of detail so that implementation teams have a sense of direction, yet have ownership and flexibility to adapt?
- How will you reward each and every player for their contribution to the business transformation?
- How will you structure the contractual relationships in the new world?
- How will you prevent intellectual property thefts in the business network?
- How will you encourage research and development field?
- How will you encourage the new product development?
- How will you encourage the organisation of a pipeline where one product after another is created systematically in several generations?
- What are the five key components that require mastery?
- Why does each of these component take nearly 10,000 hours of dedicated, enlightened practice to master?
- Should you go alone, or choose and an external guide, Sherpa or companion to help you along the journey?
- How can you choose your guide, Sherpa, companion for a business transformation?