FAQs (frequently asked questions) on supply chain Restructuring
Following are some of the frequently asked questions (FAQs) on supply chain cost reduction that we have encountered in our workshops, seminars, and other forums.
If you do not act on what you know, then you have no advantage over the person who does not know what you know. Feel free to ask more questions if your particular question is not answered below.
Why we are qualified to write this list of FAQs?
Over the last three decades we have led and worked on more than 500 projects in supply chain restructuring in dozens of industries and countries.
VERY FEW PEOPLE KNOW SUPPLY CHAINS LIKE WE DO - Retail, beverages, food, milk, dairy, meat, livestock, explosives, chemicals, cotton, rice, graphite, solar power, natural gas, crude oil, fertilizers, electronics, packaging, glass manufacturing, machine parts, automobiles, industrial goods, mining, etc are just some of the industries where boards and executives have benefited from our proprietary knowledge.
Since when no one had heard of supply chain, our co-founder Vivek Sood has been considered one of the most authoritative professionals in the field when it comes to the subject of supply chains restructuring in his clients' corporations in Australia, Asia, North America, South America and Europe.
He has written four seminal books about restructuring supply chains to gain massive advantage in business. He also regularly delivers keynote speeches at business schools and conferences such as University of Technology Sydney, Supply Chain Asia, Asian Bankers Forum, APEC Business Advisory Council.
He has been quoted in the authoritative business press and over 100 academic papers written by supply chain researchers around the world. Vivek and his team have examined thousands of supply chains during their projects over the last three decades and helped hundreds of executives build safe, cost effective and sustainable supply chains and careers.
As the name implies, supply chain restructuring projects involve changing the supply chain structure. There is a lot of confusion around, and a lot of people will call any kind of supply chain change as supply chain restructuring. But clearly, if all you change is a process, or system, or skill level then you have not really restructured the supply chain.
The most common form of restructuring in a company involves organisational design structure, or changes in reporting lines and hierarchy of the company. But that is not the only form of restructuring. Keep reading the next few questions and their answers to find out more about various types of supply chain restructuring projects.
It is very simple - every supply chain restructuring project should be a supply chain improvement, and a supply chain cost reduction project, but the opposite is not always true. So, every supply chain improvement project is not a supply chain cost reduction project which is not always a supply chain restructuring project.
The infographic below shows the difference between supply chain restructuring and various other kinds of supply chain cost reduction projects:
To find out more about supply chain cost reduction projects - you can read FAQs (Frequently Asked Questions) On Supply Chain Cost Reduction here. You will discover how changing supply chain structure (breaking structural constraints) achieves potentially the highest amount of business impact as compared to other types supply chain cost reduction projects.
If there is sufficient demand in the comments sections, at some point in future, we will write a FAQs (Frequently Asked Questions) On Supply Chain Improvement Projects.
In corporations, organisation restructure is quite common. People have come to accept this as a frequent fact of corporate life. Re-arranging the pyramid, and the boxes within that pyramid has reputation of mysteriously being able to solve every organisation ill.
Whether that cure happens or not as anticipated - every time the work "restructure" is mentioned, it conjures up an image of that activity.
In the circles of architecture there is a saying that "Form follows Function." In other words the structure should match the working requirements. Restructuring only becomes necessary only because the form does not follow the function anymore.
In other words, once the new structure matches the function, you can expect your supply chain to be more supple, responsive, agile and efficient.
Over the 2.5 decades of more than 500 projects we have always looks for the signs that the supply chain form is out of alignment with the supply chain function. Whenever we signs of misalignment we are very sure that the cost savings potential will be enormous for the rightly carried out supply chain restructuring project.
Generally the magnitude of benefits from supply chain restructuring is higher than from supply chain control, and supply chain process re-engineering.
However, the risks are almost commensurately higher for badly conceptualised or executed supply chain restructuring projects.
Supply chain restructuring projects involve conceptual thinking and a judicious mix of experience and analytical grunt power.
A misaligned supply chain can be restructured and made worse than it was. A lot of time will have to pass, and the new structure would have to visibly bad before anyone in the company will acknowledge what happened.
In fact it will be fair to say that more often than not whenever we have seen results of amateur supply chain restructuring, we have almost always found this to be the case.
Throughout this blog you will find stories of such companies who made a bad situation worse before calling us in to sort it out. In the next few questions we will try and relate some of these case stories with appropriate sensitivity.
Here are the most common forms of supply chain restructuring projects we have undertaken through the last three decades:
1. Manufacturing Footprint Optimisation:
A multi-national client of ours had a number of manufacturing plants around the world from which it supplied it customers in over 100 countries. These legacy plants were a result of closed economies of the 60s and 70s when imports and exports were restricted in many countries. In addition, some countries such as South Africa suffered from sanctioned and had to be self-sufficient in their production capabilities for a lot of products.
Clearly such a manufacturing footprint was out of sync with a modern global network. A patchwork of regional footprint optimisation effort was carried out in the past, largely exacerbating the problems for a range of reasons. Following infographic summarises our project:
2. Distribution Network Optimisation:
Another client of ours had more than 80 distribution centres throughout the continent of North America. The company had grown significantly by absorbing their competitors at the rate of about four competitors per decade. As a result the distribution network was a mish-mash of over 14 different distribution networks absorbed into the company over the last 23 years.
An objective review was necessary and revealed significant potential for engendering efficiency and effectiveness. After a thorough analysis and review, we presented the board eight different options with varying risk-reward trade-offs. The board deliberated on these options and asked us to combine some of these options and generate four new options. These options were assessed and presented to the board in four weeks time. The project was a long over-due cleanup of the supply chain structure and generated much needed efficiency.
3. Supplier Network Optimisation
Another client of ours was traditionally producer, who found it cheaper to import and distribute the product from another country. However, they never compared all the possible sources of product before embarking on this strategy.
A new executive team was put in place to generate extra savings and wanted to conduct a thorough review of the global supply chain potential for their supplier network.
Our team conducted the research and analysis of all the possible sources and presented a number of options to the executive team. We also prepared and ran RFPs and RPQs for the new suppliers and put in place the new supply chain structure and processes.
These are just three of the most common forms of supply chain restructuring projects - we have a slide book of over 250 pages from previous projects each with its own nuances ranging for changing the supply chain structure for innovation, market entry, cost reduction, technology access, specialist products access etc.
If you have a special case, and want to have a confidential discussion with us about how to think about your supply chain restructure, send us an email on email@example.com .
Supply chain restructure should not be taken lightly. It is a major undertaking, and must only be carried out where your supply chain is really out of alignment with the market reality.
At the same time there are frequent triggers - such as mergers, acquisitions, demergers, divestment, plant closures, new markets opening, new plants, big market changes (such as COVID induced business changes), technology upheavals (such as automation and remote working) - which must be paid attention to.
For example, with the current COVID crisis every supply chain is now out of alignment with the new market reality. Those who restructure their supply chains first will benefit at the expense of their competitors who are less alert to these changes.
The following symptoms might alert you to the need for a restructure:
Remember, if ever you have a doubt, it is better to call in a group of experts such as our company before embarking on a major supply chain restructuring program. In the long run this call will save you a lot of time and money.
A supply chain restructuring project is a major undertaking, almost akin to an open heart surgery. Even if you were a heart surgeon, you would not operate on yourself, or even a close family member, due to lack of emotional distance and objectivity. And only in an emergency would you allow a General Practitioner to conduct such a complicated operation.
If you have already read the questions and answers above, you would already know our answer to this question. A proper supply chain restructuring project is best left to professionals who are experienced and well versed in these projects.
You should look for external help early if you suspect you might need a supply chain restructuring - they will be able to confirm whether you need one, and how to go about it.
We are going to give these guidelines for a company assuming that there is a need for supply chain restructure.
- Once you suspect that there is a misalignment between the supply chain and the business / market, do not ignore the signs.
- As the infographic above titled HOW TO USE SUPPLY CHAIN FOR BUSINESS TRANSFORMATION shows - look for symptoms that might give you a rough roadmap for diagnostics.
- Once you have an idea what generation of supply chain your company is at, you will also have an idea of the journey ahead. This is a good time to call in an expert who is well versed in the four generations supply chains.
- Use the information in the infographic above (titled HOW TO USE SUPPLY CHAIN FOR BUSINESS TRANSFORMATION) to discern which supply chain expert would be able to diagnose the situation and come up with a solid supply chain restructuring plan. We have more guidelines on how to choose the best management consultant for your project here.
- Initially sign on only for a four week diagnostic to test waters and assess the capability of the consulting firm. We have a separate article on how to get the best out of consultants here, in case you want more information on that topic.
Over the countless supply chain restructuring projects we have undertaken in the last three decades we have seen clients teams being led by a whole variety of executives ranging from the CEO himself, to CFO, Head of Procurement, Head of Special Projects, Head of Supply Chain, Head of Strategy, Head of Execution and many other titles.
Almost all the projects succeeded, so we have concluded that the title of the person does not matter, as much as their psychographic profile. Below we outline some of the key characteristics of all these people:
- Thinks relentlessly to make things better
- Does not accept folk wisdom without cross-examination
- Knows how to persuade others and navigate the politics within their company to make things better
- Willing to share the glory with rest of the teams
- Reasonable analytical skills, and excellent industry knowledge and gut feel
- Can engage the board and senior executive team knowing their hot buttons and priorities for the company
- Abstract thinking capabilities and what-if scenario thinking
- Perseverance to follow through with the worthwhile ideas, despite all the set-backs and road-blocks, and take worthwhile ideas on board
- Knows all the potential data sources and industry knowledge sources, and how to tap them at short notice
Everyone who has read thus far knows that it takes money to save money, or make money. The key question is how much money?
Every situation is different, and it will be unprofessional to pretend that the percent expenses of a project are always the same. A few years ago we did a cost to expense ratio analysis of over 200 projects or so that we had undertaken and discovered that the range was between 2.2% and 26% or so. We currently work on the norm of about 10% expense ratio.
In other words if you save x dollars from a supply chain restructuring project, we would start with an anticipated expense of about 0.1x on this project. In reality the actual expense will vary depending on the work involved.
Please read the last answer on this page to see who all could potentially help you for a supply chain cost reduction program. Now the key noteworthy point here is that not all of them can help with supply chain restructuring as well.
Supply chain restructuring projects are only a small subset of all supply chain cost reduction projects. They are also the most complicated, most abstract and some of the most strategic projects.
They need a combination of highest level of strategic thinking skills combined with highest level of practical experience on the ground. This combination is, unfortunately, easier to talk about, than to bring to the table.
Any of the five type of consultants may happen to bring it - but the chances are that #2, #3 and #4 are unlikely to have it barring a minor miracle.
#1 and #5 are your best bets, but watch out for a mismatch between the situation and the person's comfort zone in case of #1.
Remember it is easier for a strategic person to get practical experience than for a practical person to get strategic thinking capability. Occasionally, you will find a suitable senior partner within #3 with the right amount of practical experience in the field. In that case your next big challenge will be to get them to spend the right amount of time (a minimum of 2 days per week) on your premises, working on your supply chain restructuring project.
Notes on FAQs
Clearly, any such list of frequently asked questions (FAQs) about supply chain can never be fully exhaustive. Neither is anyone, including us, the final authority and arbitrator on this or any other topic.
You will have your own opinions on many of these topics, and will have many other questions.
We throw open the comments section to you for your opinions and questions. We will try to address all of these, and the best ones will attract a reward in the form of one of our books, or publications.