Why Supply Chain Models have to change

In his book The 5-STAR Business Network (http://bit.ly/5-STARBN), Vivek Sood exposes the results of his researches on the organizational structure of companies. Companies used to follow the model of a traditional organization structure as in the following figure: business-hierarchyHowever, the global business world has changed and this structure is no longer adapted to current businesses. Companies focus on customer’s needs, but their supply network cannot provide the expected results because of this organizational structure. In effect, the problem about this structure is its rigidity. Relations between these people and departments within the company are not flexible enough, which limits the results. Rigidity is responsible for the limited effectiveness of the organization. In fact, the supply network should be more flexible, which will help the organization to be more customer centric. The traditional structure shown above is so rigid that it stifles customer responsiveness and innovation. The main change that has made this organizational structure inefficient in today’s business world is outsourcing. In effect, today’s globalized world involves outsourcing and bigger supply networks than before. This is what makes this rigid structure unadapted to current business realities. Strict hierarchy and silo mentality of the different departments prevent companies from achieving their objectives. In fact, CEOs and executives think their globalized supply network will enable them to achieve very good results and respond to customer’s needs very quickly and effectively. However, this cannot happen because of rigidity that is still present in their business, but they do not realize it. That is the reason why those who understand that are leaders in their markets. This is how Apple became leader, outstripping Sony, Samsung, Nokia, and Dell.

To be better than your competitors, you must first have a look at your organization structure. Is it rigid or flexible enough to be able to benefit from great supply opportunities thanks to your globalized supply network? Can you act faster and more effectively than your competitors in the global market? Does your organization structure enable that? If the answer to these questions is “no”, then you have to reconsider your structure first, before implementing any project. In fact, your business structure is the basis for all your decisions and strategies. That is the reason why this is the first step in your evolution towards success.

Nowadays, supply chains are built across multiple countries and continents, and you cannot take the risk to keep a traditional structure. It is not adapted to new the supply chain models. Although you are still selling a product to a customer, the process is very different from former businesses in the old business world. New supply chain models involve new organizational structures. In the new organizational structure, the customer-centric model is based on customer’s needs obviously, which involve the sales team as a key player. In fact, the sales team would be the basis for new organizational structures because they are the first people your organization needs to be able to create a satisfying product for your customers. Then, Research & Development and Marketing are also two key functions of the modern structure. Finally, the supply chain, including procurement, production and logistics, represents the support base of the organization. Consequently, the most important point to underline in this article is the importance of flexibility in new organization structures. In fact, your supply network cannot provide the maximum results if you keep a traditional structure. They do not get along together. New supply chain models imply new structures, and these modern structures involve flexibility in hierarchies and collaboration between the departments within the organisation.

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  • Jaysean says:

    It is because new supply chain models imply new structures it involves new organizational structures.

  • Celeste SC Executive says:

    The article notes the seminal research by Mr. Vivek Sood of Global Supply Chain Group in the mid-1990s that found, at a corporate level, only 30% of companies attempting to make fundamental changes in the way they did business were successful. We’re not sure what the percentage is for supply chain initiatives today – the increased focus on change management has probably increased the success ratio overall across corporations somewhat – but we would be surprised if it was over 50%.

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