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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

Gattorna, J., & Friends (2009). Dynamic supply chain alignment : A new business model for peak performance in enterprise supply chains across all geographies. Taylor & Francis Group. Created from apus on 2023-02-06 15:30:26.

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t 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.

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:

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

lean supply chains to service the ‘efficiency’ segment;

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

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

‘The number of human resource management (HRM)

professionals is increasing, but their impact is getting less.’

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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

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t 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.

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.

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

Figure 1.1 Continuous replenishment supply chains

Coach • Conscientious • Leads by teaching • Concerned for others • Loyal; committed; politically astute • Seeks agreement by consensus

Group subculture • Relationship ‘cluster’ • Standard processes, eg. Customer Account Management • CRM; SRM; VMI; ECR; CDP; CPFR • Emphasis on loyalty and retention • Encourage participative schemes • Authority/autonomy negotiated by consensus • Consultative; face-to-face • Team-building • Recruit team players

• Share information • Strategic partnerships • Long-term stability • Mutual trust

Cultural Capability • OD • Process • IT • KPIs • Incentives • Job Design • Internal Comms • T & D • Recruitment

Collaboration Zone

Value Proposition

Focus

Leadership Style

Relationship Development

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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.

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

Figure 1.2 Lean supply chains

• Seek economies of scale • Low-cost production & distribution • Forecast demand; mature products;

predictable lead- times • High reliability

Hierarchical sub-culture • Organize clusters around core processes • Standard processes; emphasis on cost • L-T capital investment in ERP and other IT systems • DIFOTEF; forecast accuracy; productivity ratios • Conformance to policies • Centralized control – rules and regulations apply • Regular; structured; on ‘need to know’ basis • Emphasis on analysis and measurement • Recruit players with analytical skills

Traditional • Leads by procedure; precedents essential • Implements proven business practices • Cost controller; efficiency focus • Uses information to control • Seeks stability • Risk-averse

Cultural Capability • OD • Process • IT • KPIs • Incentives • Job Design • Internal Comms • T & D • Recruitment

Value Proposition

Focus

Leadership Style

High volume; Low variety; Low costs; MTF

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t 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

Company Baron • Leads by objectives • Embraces change • Goes for growth • Focuses on what’s important • Analytical; fact-based solutions

Manage enterprise for responsiveness; quick reaction; MTO

• Fast decision-making • Fast delivery; flexible scheduling • Rapid response in unpredictable conditions • Available capacity

Rational subculture • ‘Clusters’ designed for speed and focused on specific subsegments • Process short-cuts; fast response • Applications: Postponement; SCP; APS; Network Models • Absolute speed of response • Achieve targets; cash and in-kind bonuses • Authority/autonomy established by clear and published limits • Formal; regular; action-oriented • Problem-solving; resource management • Recruit personnel who are results-driven

Value Proposition

Focus

Cultural Capability • OD • Process • IT • KPIs • Incentives • Job Design • Internal Comms • T & D • Recruitment

Leadership Style

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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.

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

Figure 1.4 Fully flexible supply chains

Visionary • Leads by inspiration; authentic • Informal • Decisive • Cares about ideas • Values innovation

Entrepreneurial • Small multi-disciplinary ‘cluster’, usually on standby • No standard processes; use local initiative at the time • Low systems requirements; event management appls • Emphasis on finding creative solutions, very fast • Reward individualism & risk-taking behaviour • Autonomy through empowerment • Spontaneous and informal • Lateral thinking; brainstorming • Recruit enterprising, resourceful personnel

• Meet unplanned/unplannable demand • Innovative solutions, delivered extra fast • Extensive human intervention

Hedge and deploy resources

Value Proposition

Focus

Cultural Capability • OD • Process • IT • KPIs • Incentives • Job Design • Internal Comms • T & D • Recruitment

Leadership Style

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t faithfully signal what management wants people in the firm to do. More about this in following pages of this chapter and Chapter 14.

6. Incentives. These are the mirror image of the KPIs, selected especially for particular situations. It’s a matter of ‘horses for courses’. What are the most appropriate incentives for personnel who are themselves steeped in relationship-building and maintenance. Is it cash? Or is it something in kind that will further motivate them? Again, over to the HRM professionals to figure this out. That’s what they are paid to do!

7. Internal communications. Different subcultures have different communication styles. The trick is to embed the style that best aligns with the subculture you are trying to shape. In the case of the organizational cluster driving the continuous replenishment supply chain, this is likely to be very inclusive, with actions only being taken after a consensus is reached. To be fair, this can sometimes be a slow drawn-out process but, then again, when you are servicing this type of relationship-focused customer, time is on your side. Nothing changes fast. Everything is a result of a lot of thoughtful consideration. So the cluster is just reflecting that trait.

8. Training and development. Here we expect that HRM professionals will design and conduct a Personal Development Programme (PDP) for each and every individual executive. Gone are the days of spending big on mass training initiatives. This was wasteful at best and a dereliction of duty at worst.

9. Recruitment. This parameter represents a very powerful force for ‘genetically engineering’ selected subcultures in an organization, to reflect the external market structure. Thankfully, I have met a number of recruitment firms recently that ‘get it’ and are actively engaged in delivering individuals to enterprises that meet technical, experiential and mindset parameters. Logistics Recruitment2 is one such organization, Russell Reynolds is another, and their efforts are to be applauded. What we need from the internal HRM professionals is engagement in this vital enterprise-building process.

10. Leadership style. Finally there is the overarching influence of leadership style that is perhaps as important in shaping subcultures in enterprises as organization design. Here again, there are plenty of sophisticated tools available to HRM professionals to measure and monitor management and leadership styles, but you also have to know what to do with this data. HRM professionals can assist management by helping and advising in the formation of the various clusters and, in particular, which individual executive is appropriate for the particular leadership role being considered.

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technoloGy is a wonderFul thinG

Indeed, technology is a wonderful thing when it comes to operating supply chains. The convergence of the Internet and the simultaneous development of a myriad software packages in the early 1990s was the breakthrough we had been waiting for. This broke the stalemate we had been caught in for the entire previous decade, as companies struggled to improve internal cross- functional integration. Up until that point, efforts to improve integration had largely been stymied by internal cultural forces bent on resisting change, and problems with the compatibility of various available technologies. All that changed sometime in the 1990s, and, if anything, the balance swung too far the other way as companies raced to meet the dreaded Y2K deadline of 1 January 2000.

That said, there is still too much emphasis on technology as the likely ‘silver bullet’ which is going to solve all the problems of underperforming corporate supply chains; this will never be the case. Nevertheless, too many enterprises are throwing every type of system at their supply chains, with little thought as to what designs do and don’t work. Too often, large system implementations are justified on the basis of false premises – for example, inventory reduction and increased stock-turns – when they should be seen as a strategic investment and foundation for other systems.

My work in the field with many companies over the years reveals that the specific configuration of the technology we should apply inside a particular business depends largely on the structure of the market being served and the corresponding behavioural segmentation. This in turn informs what processes are most appropriate for each major segment, and the technology that underpins these processes simply follows.

Those readers who are familiar with my recent book, Living Supply Chains3 will know that I have concluded, from many observations made in the field, that there are up to four main types of customer buying behaviour evident across many product/service categories, and this immediately equates to four corresponding generic types of supply chain, as indicated earlier. If this is true, and we believe it is, then each of those supply chains inside the company will require different treatment along several dimensions. And all four of these generic supply chains are likely to coexist. Indeed, the way we organize ourselves internally is simply a mirror image of the way our marketplace is structured in terms of customer buying behaviour. It stands to reason, therefore, that each type of supply chain will require a different technology recipe to achieve close alignment with the corresponding segment, and such is the case.

‘There is still too much emphasis on technology as the likely “silver bullet” which is going to solve all the problems of underperforming

corporate supply chains.’

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‘reQuisite’ technoloGy

Like so many other things in life, there are patterns that work and those that don’t work, and the same is true of technology applications. So, while an enterprise will surely benefit from discarding all its old legacy systems and replacing them with a single ERP system, that is only part of the story. What goes on top of this ERP is what matters. This argument is best amplified by the analogy of renovating an old house or a bathroom or kitchen at home. You can spend a lot of money on the new wiring and plumbing that goes in behind the walls, unseen. But you don’t get the value from all this investment until you apply all the fittings – the taps, basins, toilet pans, electrical switches, light fittings and so on. The same holds true for technology, as depicted in Figure 1.5 which features the Oracle Suite by way of example.

Each supply chain type has a different technology emphasis. So back to our original theme which requires us to mix and match the applications that sit on top of the ERP, like ‘pimples on a pumpkin’.

Continuous replenishment supply chains. This is the genuine ‘collaborative’ zone, and here the primary, indeed only emphasis, is on keeping the relationship going with our most loyal customers. There may only be 20 or so of them, but they could easily represent 60–80 per cent of our revenue and 80 per cent of our profitability.

The customer account management process is key in this situation and should be underpinned by a suite of applications such as:

Customer Relationship Management (CRM);

Vendor Managed Inventory (VMI);

Collaborative, Planning, Forecasting and Replenishment (CPFR);

and likewise on the supply side where relationships with strategic suppliers are critical – that is:

Supplier Relationship Management (SRM).

2. Lean supply chains. In this situation the emphasis moves away from loyalty and retention of loyal customers to a simple focus on efficiency and lowest cost-to-serve.

All the processes will be standard, and the approach is to build clusters of personnel around specific processes, so that they become absolutely routine and low-cost. More about this in Chapter 9.

The primary technology is the ERP system, supplemented by a network optimization modelling tool which is interfaced directly to the ERP. Other execution systems such as a Labour Management System (LMS) for scheduling the workforce will help drive costs down, and a Radio Frequency Identification (RFID) system will be invaluable in keeping track of stock and triggering replenishment protocols.

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3. Agile supply chains. Here the emphasis changes to absolute speed of response, even if that costs more! The name of the game when serving highly demanding customers in an unpredictable environment is to have the capacity already available – it’s too late to scramble for capacity when demanding customers come calling, and, of course, they never give you a forecast in advance!

The trick is to reduce the number of processes to a minimum and use your technology to quickly run viable scenarios to fulfil the demands. Likewise with suppliers where you are pushing them for an emergency order that was not in the original forecast.

Most companies that develop agile capabilities use a range of tools and techniques – for example,

Postponement: build an inventory of raw materials and/or components; or

Build standard modules that can be quickly assembled into unique configurations;

Supply Chain Planning (SCP);

Advanced Planning and Scheduling (APS); and

Customer Account Profitability (CAP); and, above all

A network optimization modelling tool to assist decision- making.

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Figure 1.5 ‘Requisite’ technology for supply chains

Customer ‘Buyer-Behaviour’ Segments

Collaborative Cost/Price-

Driven Demanding/

Unpredictable

Solution- Seeking

ERP Transaction System (The Foundation) and Data Base

OTM (G-LOG)

ORACLE WMS SIEBEL CRM DEMANTRA

DEMANTRA SNO (NUMETRIX)

OTM (G-LOG)

SNO(NUMETRIX) DEMANTRA

OTM (G-LOG) AGILE - PLM AGILE - PLM

ORACLE WMS

Lean Supply Chain

Agile Supply Chain

Fully Flexible Supply Chain

Different Combinations

of IT Applications

• I

a •

a AA

Pa Pa

Using the Oracle Suite as an example

J.D.Edwards • Peoplesoft (HR) • e-Business suite (EBS)

Continuous Replenishment Supply Chain

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t 4. Fully flexible supply chains. This is a ‘catch-all’ supply chain

configuration that uses a high degree of human intervention, and potentially any and all systems as required, to produce an innovative solution in quick time for the customer, who at this stage doesn’t care about the price. The situation is hurting them so much that they just want a solution, and very often it is only the supplier who has a chance of finding a solution in such a short timeframe. This type of supply chain uses whatever it takes to get a satisfactory result for the customer, and the technology can be sophisticated or basic.

In the end, typical situations involving a string of supply chain partners will require participants to mix and match different combinations of supply-side and demand-side technology point applications as described above. So a company such as Zara in the fashion industry might use lean techniques on the supply side, build a raw materials bank close to its consumer markets, and use postponement protocols to respond quickly to the fickle consumer fashion market on the demand side. Of course, the key on the demand side is to have the capacity to respond to unexpected surges in demand, in production, and downstream through to the store. Ultimately, knowing where to deploy what technologies is one of the vital keys to success in any marketplace.

out with ‘Balanced’ scorecards in supply chains, and in with ‘Biased’ Kpis

There is nothing wrong with measuring aspects of your organization’s performance, because after all we know from bitter experience that ‘people do what’s inspected, not what’s expected’! But how far do you go in collecting data and analysing the myriad pivotal points in an organization? There is certainly no shortage of material on this point, and in the vanguard is the work of Kaplan and Norton (1992).4 Their early work in particular was very comprehensive – perhaps too comprehensive. Why do I say that? Because on many occasions I have witnessed company executives bogged down in the detail, slavishly collecting data according to a long checklist, but have seen little evidence that this data, once collected, was fully analyzed and used in appropriate ways to increase performance. The hype may say otherwise, but this is the reality. Examine your own conscience on this point.

To be fair, the Kaplan and Norton ‘balanced scorecard’ incorporated both internal and external perspectives, and sought to cover both financial and non-financial measures, but it brought with it many critical weaknesses both in concept and operational use. Not the least of these were the difficulty of using it as a comparative tool between business units and the lack of a mechanism to aggregate measures for management across several business units in a conglomerate. In many ways it was a good idea that was primarily

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useful in translating an organization’s strategic objectives into a coherent set of performance measures, no more, no less. 5

More recent work by the same authors has attempted to overcome some of these weaknesses, but the fatal flaw is that they continue to treat the subject of performance measurement as an inanimate process rather than what it actually is: one of several levers potentially available to shape internal culture in the enterprise, which in turn shapes and drives visible behaviour.

shiFtinG the Focus

We need to look at this issue of performance measurement and management in an entirely different way, and the first clue as to how this might be done comes with the realization that enterprises are really an aggregation of supply chains (or pathways) running through them, from source(s) of raw materials, components, packaging and sub-assemblies, along a myriad links to nodes in the network where value-creating activities are performed, and on downstream to customers and ultimately end-users/consumers. Along these pathways information and finances are exchanged and important human relationships are formed and managed. It is these human relationships that power supply chains and therefore the business overall. Technology and infrastructure are simply the enablers, albeit essential ingredients to success.

Referring to Figure 1.6, we will now consider each of the four generic supply chain types as they are influenced by KPIs. The essential point is that we should select and use a few KPIs with each type of supply chain, and the emphasis will, by definition, be different in each case. Gone are the general

Figure 1.6 Performance measures: the four generic supply chains

Source: Adapted from Figure 2.3 in J.L. Gattorna, Living Supply Chains, FT Prentice Hall, London, 2006.

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Predictability of demand

‘ Continuous Replenishment‘

‘ Lean‘

Loose

Tight High Low

Predictable demand, easily managed through tight collaboration with customers. Measures focus on retention, reliability & customer account profitability.

Demand predicable, (for example, from historic off- take), but the loose relationship does not necessitate an extreme service level. Measures focus on predictability, accuracy, quality & efficiency.

Respond opportunistically & manage yield. Measures focus on fast, creative solutions.

Unplanned or unforeseen demand, and a sometimes loose relationship with customers – almost always demands an agile response at higher cost-to-serve. Measures focus on speed & innovation.

‘ Fully Flexible‘

‘ Agile‘

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t measures that can’t be traced back and connected to specific facets of performance.

Continuous Replenishment Supply Chains – Where Relationships Matter Most

Here we are measuring such factors as: length of customer relationships; the degree of information being shared both ways; and the percentage that we, as a supplier, represent of a particular customer’s spend in a particular product category. The focus is clearly on service reliability and retention of the relationship over the long term. Nothing less is acceptable, and yet how often do we see these valuable customers ignored and eventually lost forever, because they never come back no matter how much effort we pour, albeit belatedly, into the cause?.

To engage customers of the collaborative type in this way we need to create a ‘relationship’ subculture inside the business, which goes well beyond most commentators’ process approach towards the subject of performance measurement and management.

Lean Supply Chains – Where the Focus is on Efficiency and Lowest Cost-to-Serve

In this type of supply chain we are bent on delivering a low-cost predictable service to customers who otherwise don’t care for extras. In terms of measures, those that come to the fore are forecast accuracy, Delivery-In-Full- On-Time (DIFOT); cost per unit; and selected productivity ratios. Nothing else matters much. So inside our organization we need to encourage a ‘cost- controlling’ subculture that puts conformance to policy right up there in lights. This is not a place for mavericks.

Agile Supply Chains – Where Quick Response is Paramount

The emphasis in this type of supply chain moves from reliability to time sensitivity. How long does it take us to respond to the customer’s request, even though we did not know it was coming? This is the world of unpredictability, and surviving and thriving requires wholly different capabilities. We measure time to respond and we measure the capacity of the supply chain at vital points along the pathway to our customers. It is more a case of optimizing our resources than maximizing utilization, because, by definition, servicing customers in this mode means that we need to design in redundancy, and that costs money, which customers must be prepared to pay for at some point.

The corresponding subculture is ‘aggressively customer-focused’ and bent on speed. This is not a place for long-drawn-out processes or consensus-seeking. This is a place for action.

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Fully Flexible Supply Chains – Where Nothing is Impossible

This type of supply chain is designed to respond to the unplannable event and is therefore hard on resource usage. We are not bothered about cost, or utilization, or even relationships in this type of supply chain – only getting an acceptable result for the customer, fast, very fast. We see elements of this type in emergency or humanitarian operations, in breakdown situations and in military operations.

The subculture inside the organization is very much ‘can-do’, and everything and anyone who can assist in getting the desired result is drawn into the effort. There are little or no concerns about cost because a ‘no-fix’ means even greater cost. Creativity and innovation are key characteristics in this type of supply chain.

‘Biased’ rather than ‘Balanced’

So that’s where the preference for a ‘biased’ approach comes from – simply from recognizing that particular buying behaviours exhibited by customers at the end of supply chains requires differential – sometimes radically different – treatment to other situations. The ‘one-size-fits-all’ philosophy is dead forever, and with it goes all the general approaches to performance measurement and management. We must know and understand our marketplace and reverse engineer the appropriate selection of KPIs back from there. And to ensure they are executed we need to have in place an organization design, processes and other factors that shape the equivalent subculture; otherwise people will simply do what they prefer to do, rather than what we want them to do, and, as a consequence the ‘misalignment’ between our strategies on paper and our actions on the ground will become ever wider.

some eVidence to reFlect on

At the Smart’07 Conference in Sydney in June 2007 I addressed an audience of some 300 people on the topic of ‘Living Supply Chains’ and what this meant for designing and operating contemporary high-performance supply chains. At the end of my address I asked the audience six questions. The results are indicated below. If this audience is typical, which I think it is, we have a lot of work to do on our enterprise supply chains. The questions and answers were as follows:

Q1: Has your company/enterprise attempted to design/operate its supply chain network along ‘alignment’ principles? Yes: 33%; No 67%

Q2: Has your company/enterprise used behavioural segmentation of customers to inform the design/operation of its supply chains? Yes 21%; No 79%

‘The “one-size-fits-all” philosophy is dead forever, and with it

goes all the general approaches to performance measurement

and management.’

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t Q3: Has your company consciously attempted to shape various subcultures

to execute the different types of supply chains (pathways) that are running through the business? Yes: 32%; No 68%

Q4: Does top management in your company treat logistics/supply chain management as a specialist ‘function’ or as an integral part of the business? Yes: 69%; No 31%

Q5: Do you think top management in your company understands the role culture plays in powering corporate supply chains? Yes 38%; No 62%

Q6: If no, are they in denial? Yes 77%; No 23%

Perhaps you might like to answer the same questions yourself to get a reading on how far you are on or off the pace.

notes

1 Adapted from articles in Supply Chain Asia, November–December 2007; January/February 2008; and May/June 2008.

2 Logistics Recruitment, a Sydney-based global recruitment network, with offices in ten countries. Logistics Recruitment has recently launched the world’s first global careers site for supply chain and logistics professionals. Refer to: http://www.SupplyChainJobz.com.

3 J.L. Gattorna, Living Supply Chains, FT Prentice Hall, Harlow, 2006. 4 R.S. Kaplan and D.P. Norton, ‘The Balanced Scorecard: Measures That

Drive Performance’, Harvard Business Review (January–February 1992), pp. 71–79.

5 R.S. Kaplan and D.P. Norton, Alignment: Using the Balanced Scorecard to Create Corporate Synergies, Harvard Business School Press, Boston, 2006.

ALIgNmENt INSIghtS

Humans and their behaviour is what propels supply chains; ignore that fact at your peril.

Of all the factors that shape human behaviour on the ground, the two most powerful are ‘leadership’ and organization design. We shall have more to say about both in the following chapters.

Technology, used in innovative and enlightened ways, is a wonderful enabler when it comes to operating supply chains; treat it with due care and don’t have unrealistic expectations of its capability.

Move away from ‘balanced scorecards’ to ‘biased scorecards’ and you will see immediate improvements in performance.

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