Dynamic Supply Chain Alignment

A New Business Model for Peak Performance in Enterprise Supply Chains Across All Geographies

John Gattorna

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9780566088223
• eBook ISBN: 9781317147398
• Topic: Business
• Subtopic: Business General
• Index: Business

Just like the world financial system, but for different reasons, 21st-century corporations need a new business model for their enterprise supply chains. The old conventions no longer work in this new world of volatile and increasingly unpredictable demand and supply. The enterprise needs to become more 'connected' to its own parts, as well as its partners up and down the chains it participates in. So too, we need to embrace new ways of looking at customers to gain deeper, more insightful impressions of what they are telling us about the way they want to buy our products and services. Finally, these signals need converting into corresponding action, driven by the people in the business, leaders and staff alike, who are aligned to their customers' wishes. This is the world of dynamic supply chain alignment where, increasingly, supply chains are the business. In the follow-up to his hugely successful Strategic Supply Chain Alignment, John Gattorna's Dynamic Supply Chain Alignment, explores how to create and sustain multiple supply chains with a level of flexibility and responsiveness that allow you to respond to opportunities and threats; at the same time aligning with your suppliers, your partners and your customers. When more executives get to this stage of development the profits will flow more readily, and sustainability of performance will not be the same issue it is today. The way forward is right there in front of us; but, says John Gattorna, we must throw off old ways and embrace the new.

1 People Powering Enterprise Supply Chains¹

John Gattorna

Let’s cut to the chase and stop dancing around the issues that pervade contemporary supply chains. People, and people alone, are at the centre of every enterprise supply chain that exists in the world today. On the outside we call these people ‘customers’ or ‘clients’, and on the inside we have boards, management and employees running the business. That’s a lot of involved people! But where are the Human Resource Management (HRM) professionals? Aren’t they supposed to advise and assist top management to shape all this ‘people power’ on the inside of organizations so that we can better satisfy customers and produce a correspondingly improved bottom line? Of course there is no ‘bottom line’ if there is no ‘top line’, a fact that is sometimes lost on managers with a one-dimensional focus on costs.

It seems to me, as I travel the world and engage with major corporations, that the number of HRM professionals is increasing, but their impact is getting less. I see no evidence that they have mastered the complexity that disparate human behaviour brings to organizations, and, by extension, supply chains. Quite to the contrary, I observe a reversion to type, where they preoccupy themselves with activities that they mostly feel comfortable with – for example, personnel administration, car policies, recruitment, wages and award payments, health and safety, superannuation, and other routine matters.

A MORE ENLIGHTENED VIEW OF CONTEMPORARY SUPPLY CHAINS

Supply chains permeate every type of enterprise, whether commercial or not-for-profit; they pervade our lives and are the ‘pathways’ through which products and services move as they gather value (and cost) en route to the end-user/consumer. Along the way there are lots of processes, activities and relationships involved, enabled by technology and infrastructure. But the latter are only enablers, not the main game. I think we have forgotten this reality as we progressively became smitten by advancing technology, and in turn this has sidetracked many organizations away from the only focus that is important – customers. This reality is particularly true of enterprises that have been through the rigours of implementing an Enterprise Resource Planning (ERP) system. But it should not necessarily be the case.

The truth is that most organizations have not reached an acceptable level of understanding of their customers’ dominant buying behaviours, because they haven’t really been thinking in these terms, although few, if any, will admit it. I see very few enterprises in my travels that genuinely understand and have an in-depth knowledge of their customers. Even those that do appear to quarantine that knowledge in functional silos such as Marketing or Sales, which then leaves the back-of-shop operational staff largely in the dark, and second-guessing customer requirements. Hey, if we would only admit to ourselves that the real enemy is on the outside of the organization, not on the inside, we would be much better off! The real villains are marketing and sales personnel who are not doing enough to translate their sometimes intimate knowledge through to other parts of the enterprise. But we will leave that particular argument for later.

‘The number of human resource management (HRM) professionals is increasing, but their impact is getting less.’

ALIGNING THE ENTERPRISE AROUND CUSTOMERS

There is only one fail-safe frame of reference when designing and operating contemporary supply chains – the customer and the customer situation. This is the starting-point for all subsequent action. If you don’t think this way, you are either guessing or kidding yourself! Once you fully understand the behavioural structure of your marketplace it is possible to ‘reverse engineer’ the configuration of your supply chains back through the organization to actual operations on the ground. And, because there is always more than one type of dominant buying behaviour evident in any product/service-market situation, it follows that there is likely to be more than one type of supply chain. Indeed, I have consistently found empirical evidence to suggest three to four generic types of supply chains, and/or variations of these, in different mixes, depending on the product, service or country. Briefly, these are as follows:

1. continuous replenishment supply chains to service the ‘collaborative’ segment;

2. lean supply chains to service the ‘efficiency’ segment;

3. agile supply chains to service the ‘demanding’ segment; and

4. fully flexible supply chains to service the ‘innovative solutions seeking’ segment.

And as customers move away from their natural or preferred buying behaviours there is a good chance that they will move, either temporarily or permanently, to one of the other three buying states listed above. In some large organizations it is possible to discern more than one buying behaviour present. So, any response must have a dynamic capability; this is not duck-shooting where you have a single response and endeavour to infinitely adapt your response as customers move across your sights. That approach is cost-prohibitive because of the myriad exceptions involved, and it is very wearing on the people inside the business.

Once you pin down the structure of your marketplace, it is possible to develop a corresponding range of responses that align with the different customer buying behaviours you have identified. This becomes a packaging exercise where you mix and match recipes of attributes such as price, brand, speed and/or consistency of delivery, relationships, degree of innovation and more. The same basic product or service can be delivered in many different ways to suit the same or different customers. All well and good, but the problems are only just starting. The devil is in the detail of implementing the supply chain configurations to deliver these intended strategies, rather than their formulation, and that is where people play major roles, front and centre. They can either make things happen, or resist simply because they want to. This is an insidious form of resistance because it is difficult to identify and measure in real time, and often the effects only become apparent after significant time has elapsed. And by then it is usually too late to recover.

THE KEY TO SUCCESSFUL EXECUTION IS PEOPLE

The dynamic alignment concept requires that four levels of human endeavour be aligned – marketplace, response(s) to customer demands, internal cultural capability and leadership style – all held together primarily with leadership, organization structures, processes and technology. The biggest problems occur at the interface between intended responses (strategies) and the internal cultural capability of the enterprise. Indeed, 40–60 per cent of written plans are never delivered on the ground, and the reason for this is the dislocation that occurs at the strategy–cultural capability interface. It is not due to competitor activity as many would have us believe. The root cause of non-performance is much closer to home – that is, inside the enterprise itself, a type of ‘Trojan Horse’. My question therefore is as follows: what have HRM professionals been doing to understand and address these issues for, and on behalf of, CEOs? Where is the research to better inform practice? In short, where have they been when we needed them most? Are they not the custodians of the corporate culture? How have they advised top management in the quest to reduce obvious ‘misalignments’, particularly at this crucial interface? The answers to all these questions are pretty negative, and, worst of all, there is little or no respite in sight. Organizations continue to operate much as they have done for decades, and educational institutions are teaching the same old stuff to their students, the next generation of managers. It’s a vicious circle that we must break out of sooner rather than later. That time is getting close for many organizations – otherwise they won’t survive.

THE FOUR GENERIC SUPPLY CHAIN ALIGNMENT CONFIGURATIONS

Each of the four generic supply chain types listed above look different at each level of the alignment framework. They have to be in order to focus on a particular dominant buying behaviour. Each of these unique configurations is depicted in Figures 1.1–1.4.

Figure 1.1 Continuous replenishment supply chains

For the purposes of this discussion we will focus on the forces at work at the cultural capability level, because it is here that the human action inside the enterprise plays out, mostly hidden from view. This is also where the ‘forces of darkness’ lurk, leading to gross organizational ineffectiveness. It is also right here that we need HRM professionals to be focusing their attention and providing technical advice and support to senior management. The following attributes that shape and create subcultures are the ones we want them to focus their attention and energies on.

1. Organization design. Other than ‘leadership style’ itself, this is the most powerful force for shaping subcultures because it constrains the way in which people work, just like a straitjacket. Unfortunately, it is also the area that has seen the least progress in theory over the last several decades. Organizational designers have been unable (or unwilling) to come up with anything better than the traditional functional silos, and variations of this, such as matrix structures. Functional silos served us well in the relatively slow-moving world of the 1950s, 1960s and 1970s, but have become progressively more misaligned with the way customers want to buy over the last two decades. It seems we will never rid ourselves of this format, and maybe we won’t have to. More about that point shortly.

Figure 1.2 Lean supply chains

Matrix organization structures were introduced to overcome the weakness highlighted above in functional silos, but have generally not been effective, and will not get any more effective from here on. The problem is the internal conflicts generated at each intersection between a customer-focused account manager and the all-powerful vertical functions that hold the budgets. No joy there.

In my view there is a way forward that allows us to engage and align with customers more effectively in a fast-moving operating environment. I called this organizational format a ‘cluster’. The idea is to build groups or clusters of multidisciplinary personnel that faithfully replicate both the competences required to service a particular customer segment, as well as embedding the required mindset bias. For example, where we have a continuous replenishment supply chain aligned with a collaborative segment of customers, it is important to embed a ‘relationship’ mindset or subculture and support this with the appropriate processes and technology, as discussed below.

In this way, we can keep the conventional functional silos in place, but with a different raison d’être. They become the repository of specialist skills and competences, and the ‘force generator’ from which the new clusters draw personnel of all disciplines for short- or long-term assignment to particular clusters.

Likewise, clusters for each of the other three types of supply chain can be configured with the appropriate mix of disciplines and mindsets. Surely this is an area where HRM professionals can play a major role, working with functional and cluster heads to engineer the required configurations. More details on how to design and operate ‘clusters’ follow in Chapter 9.

2. Positioning people in appropriate roles – that is, square ‘pegs’ in square holes. This is where the fine-tuning begins. Personnel are closely reviewed in terms of their technical skills and mindsets, using such techniques as the Myers Briggs Type Indicator (MBTI) for the latter, to ensure that they ‘fit’ any roles they are appointed to. We are talking about nuances here, but they count tremendously towards organizational effectiveness at the aggregate level. The days of wiping out whole layers of management are gone. Looking back, that was born of ignorance and heavy-handedness.

Figure 1.3 Agile supply chains

3. Process re-engineering. There are no mysteries here, but the key is to ensure that the primary processes which align with each supply chain type or pathway are in place. They become standard and are invoked by the cluster as required.

4. Information technology and systems. These simply mimic and institutionalize the processes already established through enlightened re-engineering. The problem to date has been that organizations have been throwing the full gambit of systems technology at every type of customer situation, without discrimination, looking in vain for the ‘silver bullet’. However, there is no such thing in supply chain management. What we need is an underpinning ERP system to provide one version of the truth, and then interface this with different combinations of IT applications. So, for example, the main application servicing the collaborative customer segment might be a Customer Relationship Management (CRM) system. It will help us manage the loyal high-value customers in the way they expect, where relationships and trust are paramount. More about this vital dimension later in this chapter.

Figure 1.4 Fully flexible supply chains

5. Key Performance Indicators (KPIs). This is an area of management that seriously impacts on performance, yet is so badly understood. People will do what’s inspected, not what’s expected. So you have to use this principle in framing the KPIs unique to each type of supply chain. Out with the so-called ‘balanced scorecard’, and in with a few very carefully selected KPIs, purposefully designed to faithfully signal what management wants people in the firm to do. More about this in following pages of this chapter and ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• Acknowledgements
• Preface
• Prelude Findings of Expert Panels – Shades of Things to Come
• Chapter 1 People Powering Enterprise Supply Chains
• Chapter 2 ‘Requisite’ Collaboration in Enterprise Supply Chains
• Chapter 3 Building Relationships that Create Value
• Chapter 4 Lean and Agile Supply Chains
• Chapter 5 The Evolution of Fully Flexible Supply Chains
• Chapter 6 Humanitarian Supply Chains in Action
• Chapter 7 Enhanced Civil–Military Collaboration in Humanitarian Supply Chains
• Chapter 8 Revisiting and Refining Lee’s ‘Triple-A Supply Chain’
• Chapter 9 Designing Supply Chain Organizations for Peak Performance
• Chapter 10 The Supply-side View and ‘Reverse’ Logistics
• Chapter 11 Sales and Operations Planning: The Critical Ingredient in Supply Chain Operations
• Chapter 12 Supply Chain Integration Layer
• Chapter 13 Supply Chain Configurations and the Impact of Different Pricing Strategies
• Chapter 14 Performance Measurement: Shaping Supply Chain Subcultures
• Chapter 15 Using Network Optimization Modelling Techniques to Resolve Supply Chain Complexity and Achieve Aligned Operations
• Chapter 16 DHL Taiwan: Aligning the Express Business with Customers
• Chapter 17 Aligning Fonterra’s Global Supply Chain Network
• Chapter 18 Supply Chain Alignment – Brazilian Style
• Chapter 19 Supply Chain Alignment – European Style
• Chapter 20 Corporate Social Responsibility in Enterprise Supply Chains
• Chapter 21 Building Sustainable Supply Chains for the Future
• Chapter 22 Managing Disruptions in Contemporary Supply Chains
• Chapter 23 The Coming of Age of Third-Party Logistics Providers
• Chapter 24 Tax-aligned Supply Chains
• Chapter 25 The Emergence of National Logistics Cities
• Chapter 26 The Importance of Intellectual Capital and Knowledge in the Design and Operation of Enterprise Supply Chains
• Chapter 27 China and India: The Future Giants of Supply Chain Developments in the Twenty-first Century
• Chapter 28 The Supply Chains of 2030
• Last Word
• Select Bibliography
• About John Gattorna
• Notes on Contributors
• Index