The vital importance of supply chains in our lives
Dr. Gattorna is Executive Chairman of Gattorna Alignment, a Sydney-based specialist supply chain advisory firm. He has held a number of professorships, the most recent being Adjunct Professor at the University of Technology, Sydney, the SP Jain School of Global Management, and Foundation Professor to CIPS Australia.
Supply chains are the central nervous system of the economy, and in aggregate underpin the advanced lifestyle that we enjoy in Western nations. Developing nations are still a work in progress in this respect. Yet apart from the very physical manifestations we see each and every day, such as transportation on our roads, rail, sea and in the air, most consumers are oblivious to the extent to which they depend on supply chains in sustaining their everyday way of life.
The great post-World War II movement toward globalization has brought great wealth and improved lifestyles to millions of people, mostly through the efficiencies gained via smoother cross-border trade. All that is now in danger of stalling with the recent trend toward nationalism as evidenced by Trump’s regressive trade policies and the uncertainties brought on by Brexit in Europe.
At this point in history, those charged with designing and managing the supply chains of the future must find ways to counter these negative influences, for the sake of humanity and progress in general. The spotlight is squarely on national and international supply chains, and how they can adapt to intensified disruption in the operating environment.
Where to start the reinvention?
Supply chains (then called by the more restrictive term physical distribution), as a field of scientific endeavour, first emerged in the mid-1960s. For the ensuing 35 years, supply chain designs were dominated by “inside-out” thinking, where customer expectations were assumed at best – and we built our supply chain infrastructure according to what we thought best for the company first, and customers second. Efficiency and cost-saving mindsets prevailed, and very little imagination came into play. And as a result, customer satisfaction levels in this era languished as a general rule, across most if not all industries and geographies.
With the dawning of the online e-commerce era in the first decade of the 21st century, things changed very rapidly as customers and consumers, long taken for granted, began to exert their influence through social media and other means. The clever companies knew then that they had to change their ways and start redesigning their supply chains, from “outside-in.” The trick was to find a way to interpret and predict what customers were really thinking deep down and convert this knowledge into matching value propositions. We called this condition Dynamic Alignment™, and we have been working and refining it in the field since 1989. Not only does it help reduce cost-to-serve, but through the additional customer satisfaction that it delivers in parallel, it has a positive impact on revenues as well. Hallelujah!
The best-of-the-best global companies (such as the leading industrial Schneider Electric), have since adopted the overarching principle of dynamically aligning their business with customers and consumers in the target market. This has driven the realization that the previous design principle of “one-size-fits-all” was flawed, and that approach has since been replaced with multiple segments (ideally five) and an equivalent number of supply chain configurations – the result being up to 80% coverage in any given product-market situation. This is a huge improvement over the 20%-30% percent alignment achieved under the previous regime. In those days, it was the exceptions that drove up costs! This unique discovery of the ideal number of customer segments and matching supply chains is depicted in the diagram below.
Technology, both disrupter and friend
A lot has been said and written about the disruptive effects of technology, but if well managed this feeling can be reversed into something very positive.
With the overall dynamic alignment architecture resolved, where customer expectations are directly linked to the firm through an appropriate array of value propositions, underpinned by a fixed array of operational supply chains and the right subcultures, it simply remains to speed everything up.
In this respect, the advent of digitization has been a godsend. The ability to increase the clock speed of the entire organization through simplified processes, better organization designs, faster decision-making and digitisation of the E2E supply chain has led to significant operational and competitive advantages. Foremost among these is the improved ability of the organization to cope with the new, higher levels of volatility in the operating environment. Effectively, it puts the organization in sync with the externally generated volatility, and thereby reduces the negative impact of over- and under-stocks, markdowns and potential loss of sales.
Organization designs that make the difference
Assuming that any issues associated with fully implementing digitization (and that is a big assumption) are ironed out, especially those relating to master data files, the next biggest obstacle to high-performance supply chains is well and truly in our hands to fix: outdated organization structures that we continue to manage vertically, when the increasingly more demanding and mobile customers and consumers require supply chains that run at 90 degrees to the functions, across the organization.
Our suggestion is to keep the functions in place, but to second personnel from all the functions into dedicated cross-functional teams that drive the new breed of supply chain configurations mentioned earlier in the article. Zara, Li & Fung, Adidas and other great contemporary companies are already doing this, and more are set to follow this prescription for success. High responsiveness to customers is key to future success in most if not all future markets, whether consumer or industrial.
Continuous transformation rather than big bang large-scale projects
Even with everything said above, there is no guarantee of ongoing success if you rest on your laurels. Companies must do two things exceptionally well to stay ahead in the future ultra-disruptive world.
- Business as usual (BAU) must be maintained with relentless discipline, undistracted by what is going on anywhere else, other than in the target market; and
- A new startup subculture must be developed and nurtured in a separate location, away from BAU operations, where innovation is encouraged and can flourish unimpeded and, most importantly, where mistakes are tolerated. At the appropriate time, the innovations ready for prime time are moved into the BAU and become part of the new extended core business, while at the same time alignment of the new core is fully maintained with the ever-evolving target market.
In both situations identified above, the personnel involved must be made to feel valued at all times – this is the secret to achieving successful change. Contrary to popular opinion (fueled by many historical failures), personnel will enthusiastically embrace change if they are kept fully informed every step of the way – and made to feel valued for the contributions they are making.
A final word
Setting up your company for future success does not have to be as hard as we are seemingly making it. Get the conceptual design of your supply chains right using alignment principles, based on direct feedback from customers; install E2E digitization using the internet of things (IoT) and strategically located sensors to collect only the data you need to run the business; embrace blockchain protocols to ensure your customers have embedded traceability and governance to put their minds at rest; and adjust your organization structure so that it aligns with the customers in your target market. And keeping all this in mind, maintain relentless discipline as you roll out the new design in the spirit of the “flywheel effect,” where you start slowly with small improvements and gradually build momentum to the point where the combined effect of all the above mentioned initiatives, taken together, leads to sustained and unstoppable improvement in supply chain performance for the business.
Published: November 2019
Win a book!
Following the success of his book "Dynamiy Supply Chains" thought leader and supply chain guru Professor John Gattorna has released his latest work: “Transforming Supply Chains,” a book that focuses on ways to better serve customers in a disruptive world. For a chance to win a copy, please email: email@example.com
Image: Nina Tiefenbach for Delivered.