Business Transformations and supply chains go hand in hand
Most of the McKinsey (or their clone) trained strategists ask me to show data to back up my assertion that Supply Chain 3.0 is real, and here now. On the other hand, more intuitive executives (mainly from sales and marketing background, as I observe) ask me to explain the benefits of supply chain 3.0. Finally, the third group – those who I call the transformational leaders ask a simple question – how can we use the power of supply chain 3.0 in effecting beneficial business transformations.
“Old organisational models
are not adequate anymore.”
First a caveat – no benefit accrues to those who do not act. And, not just any random action will suffice (though, in most cases, any action is better than no action); you need action based on cohesive, strategic thinking.
All benefits are just potential energy till converted into reality by your kinetic energy. Of course, I have not yet talked about how supply chain 3.0 differs from its previous version – supply chain 2.0. While the full detail of that is a subject for another article, it will be necessary for us to know that these are different, and that supply chain 3.0 is a step change above supply chain 2.0.
So, we will briefly delve into various avatars of supply chains as we look at the benefits of supply chain 3.0.
To understand the potential benefits of supply chain 3.0, let us look at the current business context.
My personal takeaway message is that something immense is happening across the world of business.
Combination of globalisation, bandwidth, rising standards in the east and financial adjustments in the west are creating both opportunities and threats everywhere.
Recently, someone sent me the link to a cartoon by marketoonist.com, which I show below for comment. They quipped to me that retail business model is toast.
I agreed, but asked in return “which model is safe”. Think deeply enough, especially in line of the material in the slideshow and you can see the same threat lurking everywhere in many different forms.
But the old cliché is right. Every threat does hide an opportunity. I believe this despite the fact that I do not know enough Chinese language to attest to the fact that the Chinese character for threat and opportunity is the same (unfortunately,
I could not learn any Chinese through-out the translation of my book The 5-Star Business Network into that language).
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. However, 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 from which some of the following excerpts are taken with modifications.
Your Organisation Chart is the
is the wrong model for your Business Network
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:
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
At the present state of the business world, this 30 years is too long a time period to derive any competitive advantage from transformation. By the time the pupa comes out of its cocoon, other butterflies have already sipped nectar from almost all flowers in the garden. But that is not to say you should take shortcuts. That is one of the reasons for most in-house business transformations to achieve far less that hoped for.
of the modern organisation’s structure. However, both research & development and marketing can be outsourced, so long as the company and its core team control the outsourced entities.
“An organisation can outsource almost everything, but it can never outsource its sales.”
Forming the second tier is the foundation of the organisation – the supply chain, which incorporates
procurement, production and logistics.
They are
the support base or the backbone of the organisation, which are frequently outsourced either to
single provider or to a multitude of ‘best-of-breed’
providers around the world in such a way that the
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.
What’s surprising is that most business schools and management theories are still persisting with outdated organisational models of 80s and 90s, which bear no resemblance to the actual way businesses are choosing to structure their organisations.
“Most business schools and management theories are still persisting with outdated organisational models of 80s and 90s.”
In The Old Model of Supply Chains business used to relate to each other in a very linear model
The above customer centric model is still a model of last decade and later in this piece we will see the reasons for this assertion. First, let us examine the impact of this model in practice of the commerce as conducted by many companies today.
Due to persistence of traditional supplier-buyer relationships, when this model is applied across multiple organisations it morphs into an unworkable hierarchical structure shown in Figure.
The strategic element, the most important part of the business transformation, is the glue binding all other components together. It dictates how the physical, the informational, the process and service, and the monetary components of the business network fit together.
Now this strategic component may be different or similar to the original corporate strategy. After all, not everyone knows right from the start they are going to walk a different path sometime in the future. Some elements may be merged or weaved in together, or some be taken out and replaced completely
Imagine if 5 of more organisations are linked in a multi-layer structure shown. Unfortunately, that happens to be the case with many large organisations that compete with Apple in the market-place
today. While such a structure minimises cost and responds predictably to all external stimuli, it is not suitable for the world of rapid change we live in today.
Today, Businesses Collaborate
in a robust network
“Traditional organisational structures frequently stifle customer responsiveness and innovation.”
Success of Apple has shown that in the next decade this model needs to be supplemented by an even more evolved model which we have called Efficient Global Leadership model (EGL model for short).
In this model we recognise that no single organisation by itself is in a position to service all the needs of a customer relating to even a single product.
The fact is that two or more, in general three organisations come together as a supply chain, work together collaboratively, to fulfil the customer’s need.
Super Business Network Model
For rapid collaboration and change
Innovation expectation – very high
Functional areas collaborative openly and pro-actively
Network Linkages
Academia
Consultants
Brokers
Market intermediates
Think tanks
Government bodies
As shown in Figure 4, each one of these organisations work in close harmony with each other, where the research & development teams of each organisation work together as do marketing teams and even sales teams of these organisations.
“Two or more, in general three organisations come together as a supply chain, work together collaboratively, to fulfil the customer’s need.”
To create products, and then to manufacture those products, the production teams and the procurement teams work together to put those products in customer’s hands.
In such a model, close collaboration is required among the supply chain partners to create market and sell the products. Similarly, close cooperation is also required to produce the products,
move the products and store the products in such a way that highly innovative products are produced in shortest period of time at a fraction of the cost of traditional products and put in customers’ hands extremely quickly
“Two or more, in general three organisations come together as a supply chain, work together collaboratively, to fulfil the customer’s need.”
Needless to say, when Apple manages to put out one innovative product after another in the market place, it is not only its own innovation but also an innovation of all its partners, which is at play here.
Only when companies work together in such an efficient leadership model, do they achieve the level of success which Apple has achieved over the last 5 to 10 years. Figure 5 reminds one of the team huddles as shown below:
When an individual works on his own he is neither very efficient, nor very effective. That is the key reason, from early civilisations, humans have created organisations that give them the benefit of either effectiveness, or efficiency, or a bit of both.
Figure 6, on the other hand reminds one of camel trains or dog sleds – where one animal is closely following another as shown in the picture below. Now imagine what would happen to the whole camel train, if the first beast lost its way! Naturally, the question is why is this important?
Think about it for a minute. In fact, stop reading andjust reflect on the metaphors. A camel train was a great technology – but is now largely redundant.
Moreover, with a limited room to collaborate, it is essentially a command and control organisation. In periods of rapid development, if such organisations
stick to the tried and tested, they get left behind by their more innovative peers.
Supply Chain 3.0 differs vastly
from its predecessors
I hope by now you have grasped the business model in which Supply Chain 3.0 resides. Before we examine all the concrete benefits of Supply Chain 3.0, let us briefly differentiate it from its predecessors. Table 1 sets out to do that:
I must add here that this is yet a preliminary table; many of the concepts being presented here are still being explored. To the best of my knowledge they are articulated for the first time in the book The 5-STAR Business Network. I am leaving the full discussion of this table to future blogs because it will take a lot of time to explore the fundamental differences between each generation of supply chain and the triggers that launched the next generation.
Whether you are a small, mid-market or large corporation, whether the economic volatility is high or low, whether the economic growth environment is high or low – in almost all situations for every company, supply chain 3.0 provides outstanding benefits over and above its predecessors. Why? Because it helps leverage the power of business networks with external partners. Let me explain further.
Large businesses are notorious for moving too slowly and being less nimble than their smaller counterparts. Layers of management, volumes of policy and procedures, risk management protocols are all designed with good intent.
However, over a period of time as the intention becomes blurred and the link between the purpose and edict becomes more and more tenuous. In other words, old companies just get old and sclerotic, and lose their suppleness.
Dozens of large companies are discovering that the best way of retaining nimbleness in face of above situation is to formulate tight-lose supply chain relationships with other, more nimble companies.
This is not restricted to business process outsourcing arrangements, or Japanese style Kieretsu structures
Almost all companies try and keep their labour force numbers flexible by using some form of sub-contracting, for example. At a higher level of value added, collaboration between entities for research, new product development and customer solutions creation increases the nimbleness and responsiveness of old age corporations.
“Collaboration between entities for research, new product development and customer solutions creation increases the nimbleness and responsiveness of old age corporations.”
larger impact with supply chain 3.0
Small companies can have a much
If the impression so far is that supply chain 3.0 is only for larger, more established companies, it could not be more wrong. In fact, supply chain 3.0 is even more useful for smaller companies who can project their strengths and best attributes on a far wider scale using their 5-STAR Business Networks.
Now Red Bull is a large company, but cast your mind back a few decades when it was a small start-up competing in the global beverages industry against much larger giants. Gaining traction in more than 100 markets in a matter of 2 decades against the formidable competition who took nearly 7 decades to do that was no small feat. It would have been next to impossible without due regard to a close network of business partners and service providers.
But Red Bull is not the only example of a smaller player running rings around their much larger competition by configuring their 5-STAR Business Network.
We have helped a number of our client corporations achieve similar results in industries as diverse as solar energy, retail, chemicals, heavy engineering, machine tools and FMCG.
More pertinently, we have used the same concepts in our own business to help our clients create results far superior than our top-tier strategy consulting competitors could.
Most clients are surprised when they come to our office when they see how small our core operations is – because based on our results and global reach, they expect our company to have a much larger regular payroll.
As you can see, supply chain 3.0 is for everyone, small and big companies.
Now let me demonstrate the concrete benefits of having supply chain 3.0 and I promise these are not dull or irrelevant stories.
Supply Chain 3.0 helps leverage
your business infrastructure
“No company – not even a company as big as Boeing – has all the resources necessary to create next generation products in shortening product development cycle times.”
Over the past several decades, both the global economy as well as the business structures have evolved dramatically to such an extent that now most businesses have no recourse but to strive and create business networks using unique custom designed supply chain 3.0.
No company – not even a company as big as Boeing – has all the resources necessary to create next generation products in shortening product development cycle times.
Faced with competition from A380s and the next generation Airbus planes, Boeing set out to reconfigure a business network of infrastructure to develop, design and build the 787s in record time.
Despite the usual development hiccups – trials and tribulations – this drive towards supply chain 3.0 saved tremendous infrastructure costs for Boeing, and created goodwill around the world.
No company – not even a company as big as Boeing – has all the resources necessary to create next generation products in shortening product development cycle times.
Faced with competition from A380s and the next generation Airbus planes, Boeing set out to reconfigure a business network of infrastructure to develop, design and build the 787s in record time.
Despite the usual development hiccups – trials and tribulations – this drive towards supply chain 3.0 saved tremendous infrastructure costs for Boeing, and created goodwill around the world.
Supply Chain 3.0
helps smooth out the volatility
Recall my earlier example of companies using supply chain 3.0 to configure more flexible labour force through use of sub-contractors and outsourcing. In volatile times this is essential to smooth out the earnings.
Now let us look at a more concrete example, in a highly volatile industry. Global bulk shipping industry is one of the most volatile industries, with the shipping rates falling as much as 94% with a period of 4 weeks, or rising up to 400% with a period of few months. In such a volatile business environment,
budgeting and planning can become a nerve-racking exercise for all the companies except those which use their supplier networks to cushion the lean periods with long term contracts and find scarce capacity during the boom periods.
We have only seen a few examples of benefits that supply chain 3.0 – a business network of collaborating entities – can create for business transformations.
Once a company has the right backbone, which is a supply chain functioning at optimal level,
level, they are already sailing strong against the wind. Nonetheless, other aspects of a successful business transformations still need to be taken into account and I will discuss them in future articles.
