This blog was co-authored by Andy Birtwistle, Supply Chain Director at Concentra and Rachel McGowan-Kemp, Head of Supply Chain and Procurement at Holmes Noble.
Despite the rapid growth in global trade, supply chains are still stuck in a functional world. Supply chain professionals are not getting their voices heard in the boardroom, and without their insights, many businesses are trapped in a performance virtual cul-de-sac.
To find some solutions, my colleague, Rachel McGowan-Kemp and I recently hosted a Supply Chain business breakfast with senior figures from the sector. We see scope for revolutionising the way supply chains are run by harnessing analytics and digital technology to achieve far greater agility – and far lower costs. But making that happen means challenging conventional wisdom about how people and processes are managed – both within the supply chain function, and beyond.
Why businesses are hitting their frontier
Let’s start with some of the obstacles to change. As Lora Cecere, supply chain guru, highlights in her book Metrics that Matter, there are a number of commonly-held fallacies that are preventing businesses from getting real performance improvement from their supply chain:
- Functional excellence drives the fastest results: Not so. Functional objectives often lead to conflicts and trade-offs, thus impeding business progress
- Project-based focus = Lasting improvement: Wrong. Improvements may not last. Unless the root causes are addressed, performance will drift back to where it was.
- A lean efficient supply chain is the most effective in all circumstances: Actually, the supply chain should be segmented to address different demand profiles and service needs.
- Integration is the answer beyond the firewall: Think again. It’s synchronisation, process and goal alignment that are the real value drivers.
Elevating supply chain to the board
In this blog, we build on Lora’s work, explaining why the functional view still dominates how businesses measure and manage their performance. We propose a better way, harmoniously combining the functional view and the holistic supply chain perspective. Supply chain management needs to sit comfortably within the business management process to ensure its agenda reaches up to the board.
There is a matrix to be managed
Executive Boards and management teams tend to manage their businesses through the functions, driven by SMART KPIs and a focus on costs. Within the supply chain function, this typically means an emphasis on Procurement, Manufacturing and Logistics. Although this fosters clear accountability and cost management, it neglects the complexity and cross-functional nature of supply chains. Supply chain management needs to take into account things that cut across other functions, such as:
- Information and product flow
- Product portfolio and complexity
- Supply chain sourcing, cost and risk analysis
These things significantly impact product costs, margins, customer service and competitive position – getting them right is essential. That requires the business focus to move from a primarily functional view to a complete matrix view – and a proactive and continuous management of it (see Figure 1).
One might argue that the need for change has been recognised for many years. True enough – and yet the functional world still dominates. How can supply chain practitioners put theory into practice and make changes real?
Respect the business culture
It is unlikely that the business will move away from its strong functional focus. Managers in different functions have their own agenda and set of target KPIs to deliver against. More than likely, that is how they rose to the Board themselves and how they identify talent.
Therefore, to get the management board to adopt the matrix view, supply chain practitioners need to propose a hybrid model. This is where the role of a Supply Chain Service Centre (SCSC), or Supply Chain Centre of Excellence (SCCE), comes in. Through this structure, the ‘functional management’ system of governance can still be respected, while the SCSC can oversee the cross-functional management of the business.
The SCSC will show how cross-functional processes are performing – and how they are impacting the Supply Chain and the overall business. It will then propose supply chain policies, parameters and recommended ways of operating to the management team for approval.
Driving alignment through SCSC
The role of the SCSC is to drive the cross functional alignment and manage the cross functional flow of product through the supply chain. Its key responsibilities include:
- Reporting and managing the performance of the supply chain business process
- Providing the management teams with the right analysis and information to support the governance and decision-making process
- Sourcing decisions, network management, and supply chain risk management
- Managing the New Product Development and New Product Introduction process from the supply chain perspective
- Proposing or setting supply chain policies and standards (lot sizes, lot frequencies, movement frequencies, inventory levels, supply chain buffers, sourcing rules, etc)
- Defining Functional Process Excellence and functional standards
- Defining and managing supply chain improvement projects
The SCSC must develop and deploy a set of KPIs and analysis tools that specifically measure and analyse the cross-functional flow of information and product through the business. It also needs to measure and report on the overall supply chain performance. The usual key outcome measures are:
- Customer service levels
- Margin growth
- Customer profitability
- Product profitability
- Working capital and cash flow
- Return on assets
Achieving SCSC excellence through supply chain analytics
To fulfill these responsibilities, supply chain managers need to tap into the power of big data analytics. In addition to their functional S.M.A.R.T (Specific, Measurable, Attainable, Realistic, and Timely) KPI scorecards, managers need a flexible diagnostic tool that allows them to model, analyse, and visualise the end-to-end supply chain process. They need the ability to drill down to analyse and find root causes for poor performance and recommend corrective actions. This is where supply chain analytics comes to the fore; it helps managers perform the following:
- Sourcing decisions and network management
- Management of New Product Development and New Product Introduction
- Supply Chain risk management
- Supply Chain Policy setting, including inventory policies
- Third Party sourcing rule setting
- Process Excellence assessments
- Definition and management of supply chain improvement projects.
Since the data required is cross-functional in nature, the analytics approach must consider cross functional impacts, analyse trade-offs and set a direction of holistic business improvement. Examples of trade-offs that should be considered at every business levels are shown in Figure 2.
The SCSC should recommend trade-off policy settings that will optimise the overall business performance. It is not sufficient to only aim for the lowest cost, it is the lowest cost given the rules of the game.
Each function will continue to measure itself against ‘the numbers’ concerning the following metrics:
- Cost management
- Headcount management
- Adherence to Plans and schedules
- Compliance to quality
- Functional improvement projects
But, with the SCSC on board, all functions need to deliver their numbers while complying with the new rules of the game, such as:
- Compliance to Supply Chain Policies and Standards
- Compliance to Functional Process excellence and Functional Standards and policies
To ensure compliance to the rules, strong governance is required. This calls for good leadership and management combined with the right information and decision support systems. Leaders, managers, change agents, and analysts throughout the organisation also need to actively take part.
The need for a new breed of supply chain professional
From an employment perspective, typically supply chain has not been the sexiest of sectors. Instead of innovation and transformation discussion in the boardroom has been centred on visions of large cavernous warehouses, issues around inventory control, and huge cost pressures to serve. Consequently, there is a lack of leaders who have grown through a supply chain function in senior executive positions.
The landscape is however, changing dramatically. Complex analytical modelling, automation and increases in the sophistication of distribution networks is delivering a new breed of supply chain professionals. The industry increasingly needs supply chain visionaries in boardrooms to drive the core benefits of supply chain excellence and manifest the rewards this can bring to the business.
Within omni-channel retail for example, logistics teams are presenting new strategic direction to the core business functions By analysing customer data, studying trends and presenting these findings forward. Logistics teams can shape the behaviour of trading teams, define IT investment and influence marketing policy. Meanwhile, within the construction industry, supply chain expertise is utilised by the commercial functions, bid teams and programme management boards.
However, in order to table such thinking, the function needs to improve its long-term planning and use of emotional intelligence in communicating strategic vision cross-functionally and externally.
What is the way forward?
So where does that leave traditional supply chain operators who have been drilled on LEAN operating models and a focus on cost to serve? Clearly, we must recognise the need to bring new blood into the function-people that are prepared to challenge the status quo and think holistically.
Currently in the UK, there are only 19 out of the 130 universities that provide specific supply chain degrees. To attract millennials to the supply chain profession, the academic world and the workplace need to reinvigorate their offerings, as millennials often have a very different mind-set and cultural approach to work. Business leaders and managers alike will need to adapt their style of leadership to attract and retain the future innovators.
There are already some great initiatives out there. The Novus Trust for example, provides a strategic solution to this challenge. In partnership with core universities, blue chip manufacturers, and service suppliers, the scheme offers financial sponsorship and guaranteed work placement to potential students looking to enter into the supply chain sector. But this is only part of the story.
While we are waiting for this new raw talent to develop, how will those in the boardroom empower existing supply chain professionals at the sharp end right now?
Organisationally, many companies are establishing SCSC or Centres of Excellence to overcome this challenge. Supply chain analytics tools alongside the right culture and people fit are the key enablers of these service centres. With faster and more accurate cross-functional insights, product flow analysis, and policy setting, analytics will help supply chain professionals to drive innovation and have a stronger voice. SCSC and the board can then begin to properly manage the matrix that will move them to the next level of business performance.
Talk to Concentra and see how SupplyVue, its game-changing Supply Chain Analytics product, is transforming the way blue chip organisations manage their supply chain, improving performance, reducing inventory levels and gaining competitive advantage, every day.
Holmes Noble is a personal and progressive executive search firm led by a team of highly experienced sector and functional experts. We have extensive experience in identifying and placing great individuals within the supply chain, logistics and procurement that facilitate growth and deliver change.
Holmes Noble, www.holmesnoble.com