Delivering an integrated supply chain

Delivering an Integrated Supply Chain

In our last article we discussed the fragmented nature of today’s markets and the importance of an Operating Model for each demand segment. This month we share our experience of delivering an integrated supply chain across multiple global sites.

In complex global organisations, the supply chain is often poorly designed, even when demand is well segmented. This results in:

• Overly complex, opaque supply chains, with decisions made at one point in the chain having unintended consequences elsewhere
• Authority and responsibility existing in the wrong place leading to poor quality decisions
• Chaotic and reactive operations with excess inventory and/or uncontrolled operating costs unable to consistently deliver the customer promise.

Whilst technology is a key part of any solution, our experience is that poor organisational design is often at the core of a poorly operating supply chain.

Obstacles to Good Design

It is best to use a very simple change hierarchy where vision and strategy flow through to clear policies and processes. It is only then that the application of technology and the design of the organisation can be understood.

All too frequently one of two approaches are adopted:

• Defining vision and strategy, then leaping into organisation design
• Designing the organisation without the critical challenge of the strategy, with processes subsequently designed to fit the organisation.

Inevitably this is an emotive subject, affecting livelihood and individual career aspirations as well as deeply embedded customs and practice. The first critical element of success is taking the emotion out. We do this by creating and agreeing an objective customer centric view of all demand segments and the physical supply chain processes required to deliver these. There is no discussion of the organisation required until the “what” is to be delivered is agreed.

In supporting a complex manufacturing business design its service supply chain, it wasn’t until the stock points and balance between central and local control was defined that we designed the organisation, split tasks and responsibilities and agreed KPIs to drive the required performance.

Trends in Design

Having defined what is required, the key to success in our experience is to design the organisation from the bottom up, initially by defining what balance is required between global, regional and local control. This is often influenced by a corporate culture of central or delegated authority rather than by the true needs of the supply chain.

There are a number of trends in supply chain organisation design:

• The more complex and integrated a supply chain, the more centralised its supply chain organisation will be, particularly where a single centralised view of the supply chain is key to its management
• The more globalised the markets and manufacturing footprint, the more the supply chain organisation is centrally managed but physically dispersed across time zones
• The greater the product and manufacturing complexity, the more the detailed scheduling and execution are managed locally. This reflects the greater level of detailed knowledge of interdependencies and constraints.

We have supported our clients in the design of their global organisation as part of a wider supply chain transformation. By structuring the tasks by whether they are local, regional and central, and defining the linkages between these tasks, the authority and organisational requirements become clear. Whilst never completely diffusing the emotion it makes the discussions and decision-making objective and evidence-based rather than emotionally-driven.

Critical Success Factors

For an integrated supply chain organisation to be successful, however well designed there are a few critical success factors that it is easy to lose sight of:

• Ensure that the synergies to create a single integrated supply chain organisation are real. A complex manufacturing client of ours operates a stock-based business as well as a complex multi-million dollar project business. The differences are greater than the similarities and these are managed through separate global supply chain organisations
• Don’t underestimate the effort and cost of ensuring the data that drives supply chain decision making is of the required granularity and integrity. The task of maintaining and aligning this is unglamorous, easy to see as a cost to cut but without this the supply chain will not operate as designed. Simple things like differences in Units of Measure can have all sorts of unintended consequences. A recent medical devices client had three differing box quantities for the same item at various points of the supply chain, which drove all sort of batching issues and was a core reason of excess stock in the supply chain.

In our experience the benefits of an integrated supply chain are so compelling that all stakeholders will quickly see the advantages once strategic clarity is achieved and the processes and organisation are aligned.

Tim Richardson
Development Director
Iter Consulting