understanding the value of a supply chain structure

8/11/2019 Understanding the value of a Supply Chain Structure

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In Part 1 of this series, you may recall how we discussed some of the common challenges attributed

to managing supply chains effectively. 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

identified in part 1. SCMPro brings y0u the second part.

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UnderstandingtheValueof aSupply ChainStructure

Managing the corrective actionsin such situations, will involvea structured review process ofthe organisation, the vision

and mission statements and the managementapproach to driving company wide integratedprograms. Tis is a major process andwouldundoubtedly create a high degree of disrup-tion to the organisation. It will also presentmanagement with a formidable challenge andrequires decisive leadership in the organisa-tion to initiate and sustain such a programs.

Whilst one might feel that this sounds sofamiliar, they will be hearted to know, thattheir company or circumstances, are not alonein facing such issues. Surprisingly there are

Honorary Fellowand Lectures forthe University ofWollongong.

Over 3o years ofexperience in corporatelogistics and supplychain management has

founded ESP Consult.

Currently servesas President of theLogistics and SupplyChain Management

Society.

For more information on the articles or to contact the writers please email [email protected]


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an overall super strategy to makeit all happen. Tis would seenquite evident, but it is not alwaysclear on how it would be done and

who would be responsible for the-executions of this activities.

Tis is in fact the 1ststep toappreciate the Value of a SupplyChain function within an organi-sation, aclearly defined and struc-

tured system to enable the execu-tion of the business strategies andmodel.

In the i llustration below, is il lus-trated a traditional business struc-ture, in the classical chain of com-mand. Te introduction of a supplychain function would seem quiteeasy to bring it into organisation,

which could be a dedicated supplychain function working with all theother functions as show below.

Tis approach would be easyto implement and create the pathof least resistance, disruption andcost. A solution that many in theorganisation would well subscribeto, as it involves minimal changeto their departments, authorityand responsibilities. But before toolong, managing sucha structure

would prove to be very difficult,

yield low results and eventuallycollapse. It will fail because theonly change made, was to createa new horizontal functional layerinto the existing organisation, andgive it the name of supply chain.Te expectation that the existingvertical organisation would followthe directives and coordination ofthis new function, is a dream andnot 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 toembrace the knowledge and sci-ence of managing supply chains.Tis is also manifested in theHR statistics of how few compa-nies haveinvested in supply chaincompetencies and strategic man-agement education and trainingin a consistent manner across the

whole organisat ion.By cherry picking and ap-

plying snippets of supply chainpractises,one does not really har-ness the full supply chain method-ologies, that are able to integratethesupply execution capabilitiesto thebusiness strategy.

In this part of the series, wewill examine the value of deploy-inga supply chain structure intothe business model, irrespectiveof size, market sector or the goodsor services involved. Most busi-ness leaders are very familiar withbusiness strategies, business mod-els, product strategy, marketingstrategies, investmentstrategy andmany other strategies relevant tothe business functions. But thesestrategies, campaigns, productlaunches and the like, are plans on

what and when to do somethingthat will bring revenue and profitto the Enterprise. But what aboutthe how ?

The Business StrategyWhat is crucial to achieving thegoals ofthe business strategies, isthe implementation and executionof the strategic plans.Te variousstrategies need to be executed in acoherent and synchronised man-ner or will be ineffective in theirdeployment. Te more the strate-gies, and the increased businesscomplexity, the more critical willbe the timing, methodology andaccuracy of the execution model.

Managing the execution proc-esses of a company business strat-egy, and sustaining the businessmodel, would suggest the need of

ESP Consult enablingsustainable performance

Supply Chain ModelEnterpriseOverview

BusinessStrategy

BusinessModel

SupplyChainModel2

Organisa on

Strategy

Financial

Strategy

MakeorBuy

Strategy

Sales&

Marke ng

Strategy

Product

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more sophisticated than what theyreally are.

Te simple and unambiguousdefinition of a supply chain, can bedescribed as,A series of tightly in-terconnected and related processesthat form the backbone of an En-terprises capabilities to transformand deliver its revenue generatinggoods and servicesto its Customers.

o illustrate this fundamentaldefinition, 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. Inchart below we show this businessmodel, as having 3 major blocks inthe company business cycle.

As this model is fundamental

signed for illustration of the pointof principle and are not intendedto represent the optimum supplychain model or structure.

What is a Supply Chain ?At this point, we should pauseto reflect on the definition andcomponents of what makes up asupply chain and then to appreci-ate how it becomes relevant to anEnterprise.

Tere are many interpretationand definitions of what is a sup-ply chain. Some imagine it to bea complicated methodology whereyou need tohave highly skilled andintellectual graduates to under-stand it and work it. Whilst othersconfuse or interchange terminolo-gies, to make simple things sound

to understanding the basics of thesupply chain management, we mustfocus all the company activities thatrevolve around the 3 major blocksof a companys businesscycle.

When one can visualiseacom-pany business cycle, modelledinthis manner, it will be clearer tosee how the business strategy, canbe effectively executed. Creating alogical structure around the com-pany business cycle,will enable allthe organisational functions to bet-ter identify their roles in the model.Te processes and mechanisms toconnect the 3 major blocks of thebusiness cycle, becomes the supplychain execution model.

Having set-up the fundamen-tals of the supply chain model,eachof the major blocks will have aclear visibility of where and howtheir operational functions arelinked and contributeto the overallsupply chain. By re-focussing thecompany vertical functions in thismanner, we are now able to betterdefinethe processes,monitor the ef-fectiveness and measure perform-ance of the supply chain.

Connecting the key points ofthe business modelPut very simply, the supply chain isthe Blood Line that connects ina structured manner,the activitiesof all the relevantfunctions of anEnterprise in coherent and inter-connected flows.

However, these supply flows, donot happen by chance, nor workon their own in isolation. But theyare driven by vital stimuli to sus-tain the overall performance.

It is the synchronised coherenceto the business strategy that createsthe positive supply chain flows. Tebusiness functions in the supplychain, are the basic enablers and

will provide the operating capabili-ties to execute the business strategy.

In the chart below we show therevised 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 anEnterprise in coherent and interconnected flows.

ESP Consultenablingsustainable performance

Supply Chain ModelEnterpriseOverview

BusinessStrategy

BusinessModel

CompanyBusinessCycle&SupplyChainModel

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Organisa on

Strategy

Financial

Strategy

MakeorBuy

Strategy

Sales&

Marke ng

Strategy

Product

Strategy


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we put at the centre, the businesscycle and the supply chain execu-tion model. Wethen connect theexecution model to the verticalfunctional organisation and to thebusiness model, that supports thebusiness strategy.

If the enablers are aligned, bal-anced and driven by a competentleadership in all functions, it willbethis momentum that will lead toan effective and successful execu-tion of the business strategy.

An effective supply chain struc-ture should not be complicated normysterious in its design and opera-tion. Te value of the supply chainshould include all the elements rele-vant to the business model, scalablein its deployment, agile to adapt tochanges in the business and operat-ing conditions, whilst able to con-sistently deliver the required supplychain performance targets relevantto the business strategy.

Complicated organisationcharts, elaborate job titles andstrange job positions,that haveevolved over time, sometimes alsodue to legacy reasons, often con-fuse and distort the real supplychain functions. When reviewing asupply chain structure, it would bevery productive, to discard all theelaborate organisation charts, jobtitles and thepeculiar job positionsandimagine what the organisationcould be if we applied the basics

that we described above. Tis ap-proach will facilitate and engagethe management and key decisionmakers,in a complete re-think of arelevant functional organisation.

Anorganisational focus,mustbe made on the core functions,that are relevant and mandatoryto create the necessary capabilitiesto deliver the results. Tese are theresources and competencies thatshould be embedded into the or-ganisation, that can create the ca-pabilities necessary to achieve theEnterprises deliverables.

In Part 4 of this series, we willdiscuss in more detail optimisingpeople and competencies in supplychain organisations.

The value and benefit froma structured supply chainfunction.Understanding and using the busi-ness cycle andsupply chain modeloverview, we are now able to devel-opa more effective organisation andfunctional 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 overallprofitability.

ing resources and remove the non-contributing elements from coresupply chain activities. A struc-tured approach also enables a betteralignment of relevant resources and

will also reduce operating costs andimprove overall profitability.

Te cost reductions that weexpect from this process, will bethe elimination of overlapping ac-tivities, wastages in time and effortbut also create a leaner more re-sponsive organisation able to adaptto changes in market conditions.

Tis will enable the manage-ment to identify the critical proc-esseswithin each contributingfunction, which can be defined,measured andcontrolled. Te re-sult would give a more visible sup-ply chain model, with performanceindicators in a coherent structure.

It is the collective optimisedKPI results of each business block,that gives the comprehensive vis-ibility of the overall company per-formance. Part 6 of this series willbe dedicated to Performance Man-agement of the supply chain wherewe will expand the above discus-sion points further.

In part 3 of this series, we will belooking at Building and Sustainingan Enterprise Supply Chain Model.Tis will be relevant to all compa-nies, large and small, mature andgrowing, as the business models arenever static, and so are supply chaincontinuously evolving. It is crucialthat refreshing the supply chain ef-fectiveness can only be derived bysustaining the necessary capabili-ties, that are relevant to deliveringthe Enterprises goals.

ESP Consultenablingsustainable performance

Supply Chain Model

Customer

DemandFulfilment

Demand

Management

Demand

Crea on

CompanyBusinessCycle

understanding the value of a supply chain structure

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