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2nd of a series of 6 articles that talks about challenges in achieving optimal Supply Chain performance. Co-authored with Joe Lombardo and Stephanie Krishnan and printed professional publications in Australia, India and the Asia Pacific region
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Understanding the value of a Supply Chain Structure
2nd of a series of 6 articles that talks about challenges in achieving optimal Supply Chain performance. Co-authored with Joe Lombardo and Stephanie Krishnan and printed professional publications in Australia, India and the Asia Pacific region
2nd of a series of 6 articles that talks about challenges in achieving optimal Supply Chain performance. Co-authored with Joe Lombardo and Stephanie Krishnan and printed professional publications in Australia, India and the Asia Pacific region
In Part 1 of this series, you may recall how we discussed some of the common challenges attributed to managing supply chains efectively. We have recognised, that a key factor for dysfunctional supply chains, is themisalignment between the business strategies. The level of adequate and competent execution capabilities in the organisation, as another contributing factor that was identifed in part 1. SCMPro brings y0u the second part. 34 Understanding the Value of a Supply Chain Structure M anaging the corrective actions in such situations, will involve a structured review process of the organisation, the vision and mission statements and the management approach to driving company wide integrated programs. Tis is a major process andwould undoubtedly create a high degree of disrup- tion to the organisation. It will also present management with a formidable challenge and requires decisive leadership in the organisa- tion to initiate and sustain such a programs. Whilst one might feel that this sounds so familiar, they will be hearted to know, that their company or circumstances, are not alone in facing such issues. Surprisingly there are Stephanie KriShnan Honorary Fellow and Lectures for the University of Wollongong. Joe Lombardo Over 3o years of experience in corporate logistics and supply chain management has founded ESP Consult. raymon KriShnan Currently serves as President of the Logistics and Supply Chain Management Society. For more information on the articles or to contact the writers please email info@lscms.org Knowledge 35 SCMPr July 2014 35 an overall super strategy to make it all happen. Tis would seen quite evident, but it is not always clear on how it would be done and who would be responsible for the- executions of this activities. Tis is in fact the 1ststep to appreciate the Value of a Supply Chain function within an organi- sation, aclearly defned and struc- tured system to enable the execu- tion of the business strategies and model. In the illustration below, is illus- trated a traditional business struc- ture, in the classical chain of com- mand. Te introduction of a supply chain function would seem quite easy to bring it into organisation, which could be a dedicated supply chain function working with all the other functions as show below. Tis approach would be easy to implement and create the path of least resistance, disruption and cost. A solution that many in the organisation would well subscribe to, as it involves minimal change to their departments, authority and responsibilities. But before too long, managing sucha structure would prove to be very difcult, yield low results and eventually collapse. It will fail because the only change made, was to create a new horizontal functional layer into the existing organisation, and give it the name of supply chain. Te expectation that the existing vertical organisation would follow the directives and coordination of this new function, is a dream and not sustainable. Note: All the charts are de- By cherry picking and applying snippets of supply chain practises, one does not really harness the full supply chain methodologies. many organisations that fail to embrace the knowledge and sci- ence of managing supply chains. Tis is also manifested in the HR statistics of how few compa- nies haveinvested in supply chain competencies and strategic man- agement education and training in a consistent manner across the whole organisation. By cherry picking and ap- plying snippets of supply chain practises,one does not really har- ness the full supply chain method- ologies, that are able to integratethe supply execution capabilitiesto the business strategy. In this part of the series, we will examine the value of deploy- inga supply chain structure into the business model, irrespective of size, market sector or the goods or services involved. Most busi- ness leaders are very familiar with business strategies, business mod- els, product strategy, marketing strategies, investmentstrategy and many other strategies relevant to the business functions. But these strategies, campaigns, product launches and the like, are plans on what and when to do something that will bring revenue and proft to the Enterprise. But what about the how ? The Business Strategy What is crucial to achieving the goals ofthe business strategies, is the implementation and execution of the strategic plans.Te various strategies need to be executed in a coherent and synchronised man- ner or will be inefective in their deployment. Te more the strate- gies, and the increased business complexity, the more critical will be the timing, methodology and accuracy of the execution model. Managing the execution proc- esses of a company business strat- egy, and sustaining the business model, would suggest the need of
2 2 Feature This approach would be easy to implement and create the path of least resistance, disruption and cost. A solution that many in the organisation would well subscribe to, as it involves minimal change to their departments, authority and responsibilities. But before too long, managing sucha structure would prove to be very difficult, yield low results and eventually collapse. It will fail because the only change made, was to create a new horizontal functional layer into the existing organisation, and give it the name of supply chain. The expectation that the existing vertical organisation would follow the directives and coordination of this new function, is a dream and not sustainable. Note: All the charts are designed for illustration of the point of principle and are not intended to represent the optimum supply chain model or structure. What is a Supply Chain ? At this point, we should pause to reflect on the definition and components of what makes up a supply chain and then to appreciate how it becomes relevant to an Enterprise. There are many interpretation and definitions of what is a supply chain. Some imagine it to be a complicated methodology where you need tohave highly skilled and intellectual graduates to understand it and work it. Whilst others confuse or interchange terminologies, to make simple things sound more sophisticated than what they really are. The simple and unambiguous definition of a supply chain, can be described as,A series of tightly interconnected and related processes that form the backbone of an Enterprises capabilities to transform and deliver its revenue generating goods and servicesto its Customers. To illustrate this fundamental definition, let us consider atypical business model. It starts, with a Customer order, and ends with a Customer delivery, and in between we have an internal process of transformation. In chart below we show this business model, as having 3 major blocks in the company business cycle. As this model is fundamental to understanding the basics of the supply chain management, we must focus all the company activities that revolve around the 3 major blocks of a companys businesscycle. When one can visualiseacompany business cycle, modelledin this manner, it will be clearer to see how the business strategy, can be effectively executed. Creating a logical structure around the company business cycle,will enable all the organisational functions to better identify their roles in the model. The processes and mechanisms to connect the 3 major blocks of the business cycle, becomes the supply chain execution model. Having set-up the fundamentals of the supply chain model,each of the major blocks will have a clear visibility of where and how their operational functions are linked and contributeto the overall supply chain. By re-focussing the company ESP Consult enablingsustainableperformance Supply Chain Model Enterprise Overview BusinessStrategy BusinessModel SupplyChainModel 2 Organisa on Strategy Financial Strategy MakeorBuy Strategy Sales& Marke ng Strategy Product Strategy ESP Consult enablingsustainableperformance Supply Chain Model Customer DemandFulfilment Demand Management Demand Crea on 4 CompanyBusinessCycle Knowledge 36 SCMPr August 2014 more sophisticated than what they really are. Te simple and unambiguous defnition of a supply chain, can be described as,A series of tightly in- terconnected and related processes that form the backbone of an En- terprises capabilities to transform and deliver its revenue generating goods and servicesto its Customers. To illustrate this fundamental defnition, let us consider atypical business model. It starts, with a Customer order, and ends with a Customer delivery, and in between we have an inter- nal process of transformation. In chart below we show this business model, as having 3 major blocks in the company business cycle. As this model is fundamental signed for illustration of the point of principle and are not intended to represent the optimum supply chain model or structure. What is a Supply Chain ? At this point, we should pause to refect on the defnition and components of what makes up a supply chain and then to appreci- ate how it becomes relevant to an Enterprise. Tere are many interpretation and defnitions of what is a sup- ply chain. Some imagine it to be a complicated methodology where you need tohave highly skilled and intellectual graduates to under- stand it and work it. Whilst others confuse or interchange terminolo- gies, to make simple things sound to understanding the basics of the supply chain management, we must focus all the company activities that revolve around the 3 major blocks of a companys businesscycle. When one can visualiseacom- pany business cycle, modelledin this manner, it will be clearer to see how the business strategy, can be efectively executed. Creating a logical structure around the com- pany business cycle,will enable all the organisational functions to bet- ter identify their roles in the model. Te processes and mechanisms to connect the 3 major blocks of the business cycle, becomes the supply chain execution model. Having set-up the fundamen- tals of the supply chain model,each of the major blocks will have a clear visibility of where and how their operational functions are linked and contributeto the overall supply chain. By re-focussing the company vertical functions in this manner, we are now able to better defnethe processes,monitor the ef- fectiveness and measure perform- ance of the supply chain. Connecting the key points of the business model Put very simply, the supply chain is the Blood Line that connects in a structured manner,the activities of all the relevantfunctions of an Enterprise in coherent and inter- connected fows. However, these supply fows, do not happen by chance, nor work on their own in isolation. But they are driven by vital stimuli to sus- tain the overall performance. It is the synchronised coherence to the business strategy that creates the positive supply chain fows. Te business functions in the supply chain, are the basic enablers and will provide the operating capabili- ties to execute the business strategy. In the chart below we show the revised Enterprise chart, where Put very simply, the supply chain is the Blood Line that connects in a structured manner, the activities of all the relevant functions of an Enterprise in coherent and interconnected fows.
3 3 Feature vertical functions in this manner, we are now able to better definethe processes,monitor the effectiveness and measure performance of the supply chain. Connecting the key points of the business model Put very simply, the supply chain is the Blood Line that connects in a structured manner,the activities of all the relevantfunctions of an Enterprise in coherent and interconnected flows. However, these supply flows, do not happen by chance, nor work on their own in isolation. But they are driven by vital stimuli to sustain the overall performance. It is the synchronised coherence to the business strategy that creates the positive supply chain flows. The business functions in the supply chain, are the basic enablers and will provide the operating capabilities to execute the business strategy. In the chart below we show the revised Enterprise chart, where we put at the centre, the business cycle and the supply chain execution model. Wethen connect the execution model to the vertical functional organisation and to the business model, that supports the business strategy.
If the enablers are aligned, balanced and driven by a competent leadership in all functions, it will bethis momentum that will lead to an effective and successful execution of the business strategy. An effective supply chain structure should not be complicated nor mysterious in its design and operation. The value of the supply chain should include all the elements relevant to the business model, scalable in its deployment, agile to adapt to changes in the business and operating conditions, whilst able to consistently deliver the required supply chain performance targets relevant to the business strategy. Note: The charts contained in this series, are designed for illustration of the points of principle and are not intended to represent the optimum supply chain model or structurefor any specific company or industry Complicated organisation charts, elaborate job titles and strange job positions,that have evolved over time, sometimes also due to legacy reasons, often confuse and distort the real supply chain functions. When reviewing a supply chain structure, it would be very productive, to discard all the elaborate organisation charts, job titles and thepeculiar job positions andimagine what the organisation could be if we applied the basics that we described above. This approach will facilitate and engage the management and key decision makers,in a complete re-think of a relevant functional organisation. Anorganisational focus,must be made on the core functions, that are relevant and mandatory to create the necessary capabilities to deliver the results. These are the resources and competencies that should be embedded into the organisation, that can create the capabilities necessary to achieve the Enterprises deliverables. In Part 4 of this series, we will discuss in more detail optimising people and competencies in supply chain organisations. The value and benefit from a structured supply chain function. Understanding and using the business cycle andsupply chain model overview, we are now able to developa more effective organisation and functional sub-organisations This would synchronisebetter the existing resources and remove the non-contributing elements from core supply chain activities. A structured approach also enables a better alignment of relevant resources and will also reduce operating costs and improve overall profitability. ESP Consult enablingsustainableperformance Supply Chain Model Enterprise Overview BusinessStrategy BusinessModel CompanyBusinessCycle&SupplyChainModel 5 Organisa on Strategy Financial Strategy MakeorBuy Strategy Sales& Marke ng Strategy Product Strategy Knowledge 37 SCMPr August 2014 we put at the centre, the business cycle and the supply chain execu- tion model. Wethen connect the execution model to the vertical functional organisation and to the business model, that supports the business strategy. If the enablers are aligned, bal- anced and driven by a competent leadership in all functions, it will bethis momentum that will lead to an efective and successful execu- tion of the business strategy. An efective supply chain struc- ture should not be complicated nor mysterious in its design and opera- tion. Te value of the supply chain should include all the elements rele- vant to the business model, scalable in its deployment, agile to adapt to changes in the business and operat- ing conditions, whilst able to con- sistently deliver the required supply chain performance targets relevant to the business strategy. Complicated organisation charts, elaborate job titles and strange job positions,that have evolved over time, sometimes also due to legacy reasons, often con- fuse and distort the real supply chain functions. When reviewing a supply chain structure, it would be very productive, to discard all the elaborate organisation charts, job titles and thepeculiar job positions andimagine what the organisation could be if we applied the basics that we described above. Tis ap- proach will facilitate and engage the management and key decision makers,in a complete re-think of a relevant functional organisation. Anorganisational focus,must be made on the core functions, that are relevant and mandatory to create the necessary capabilities to deliver the results. Tese are the resources and competencies that should be embedded into the or- ganisation, that can create the ca- pabilities necessary to achieve the Enterprises deliverables. In Part 4 of this series, we will discuss in more detail optimising people and competencies in supply chain organisations. The value and beneft from a structured supply chain function. Understanding and using the busi- ness cycle andsupply chain model overview, we are now able to devel- opa more efective organisation and functional sub-organisations Tis would synchronisebetter the exist- A structured approach also enables a better alignment of relevant resources and will also reduce operating costs and improve overall proftability. ing resources and remove the non- contributing elements from core supply chain activities. A struc- tured approach also enables a better alignment of relevant resources and will also reduce operating costs and improve overall proftability. Te cost reductions that we expect from this process, will be the elimination of overlapping ac- tivities, wastages in time and efort but also create a leaner more re- sponsive organisation able to adapt to changes in market conditions. Tis will enable the manage- ment to identify the critical proc- esseswithin each contributing function, which can be defned, measured andcontrolled. Te re- sult would give a more visible sup- ply chain model, with performance indicators in a coherent structure. It is the collective optimised KPI results of each business block, that gives the comprehensive vis- ibility of the overall company per- formance. Part 6 of this series will be dedicated to Performance Man- agement of the supply chain where we will expand the above discus- sion points further. In part 3 of this series, we will be looking at Building and Sustaining an Enterprise Supply Chain Model. Tis will be relevant to all compa- nies, large and small, mature and growing, as the business models are never static, and so are supply chain continuously evolving. It is crucial that refreshing the supply chain ef- fectiveness can only be derived by sustaining the necessary capabili- ties, that are relevant to delivering the Enterprises goals.
2 2 Feature This approach would be easy to implement and create the path of least resistance, disruption and cost. A solution that many in the organisation would well subscribe to, as it involves minimal change to their departments, authority and responsibilities. But before too long, managing sucha structure would prove to be very difficult, yield low results and eventually collapse. It will fail because the only change made, was to create a new horizontal functional layer into the existing organisation, and give it the name of supply chain. The expectation that the existing vertical organisation would follow the directives and coordination of this new function, is a dream and not sustainable. Note: All the charts are designed for illustration of the point of principle and are not intended to represent the optimum supply chain model or structure. What is a Supply Chain ? At this point, we should pause to reflect on the definition and components of what makes up a supply chain and then to appreciate how it becomes relevant to an Enterprise. There are many interpretation and definitions of what is a supply chain. Some imagine it to be a complicated methodology where you need tohave highly skilled and intellectual graduates to understand it and work it. Whilst others confuse or interchange terminologies, to make simple things sound more sophisticated than what they really are. The simple and unambiguous definition of a supply chain, can be described as,A series of tightly interconnected and related processes that form the backbone of an Enterprises capabilities to transform and deliver its revenue generating goods and servicesto its Customers. To illustrate this fundamental definition, let us consider atypical business model. It starts, with a Customer order, and ends with a Customer delivery, and in between we have an internal process of transformation. In chart below we show this business model, as having 3 major blocks in the company business cycle. As this model is fundamental to understanding the basics of the supply chain management, we must focus all the company activities that revolve around the 3 major blocks of a companys businesscycle. When one can visualiseacompany business cycle, modelledin this manner, it will be clearer to see how the business strategy, can be effectively executed. Creating a logical structure around the company business cycle,will enable all the organisational functions to better identify their roles in the model. The processes and mechanisms to connect the 3 major blocks of the business cycle, becomes the supply chain execution model. Having set-up the fundamentals of the supply chain model,each of the major blocks will have a clear visibility of where and how their operational functions are linked and contributeto the overall supply chain. By re-focussing the company ESP Consult enablingsustainableperformance Supply Chain Model Enterprise Overview BusinessStrategy BusinessModel SupplyChainModel 2 Organisa on Strategy Financial Strategy MakeorBuy Strategy Sales& Marke ng Strategy Product Strategy ESP Consult enablingsustainableperformance Supply Chain Model Customer DemandFulfilment Demand Management Demand Crea on 4 CompanyBusinessCycle