Senior management teams across

Transcription

1 The New Supply Chain Organization Which operational model should you choose? Stratex Networks successfully meets the challenge of supply chain reorganization. SHOSHANAH COHEN Senior management teams across many industries are increasingly realizing how strategic their supply chain is to business: that it is, in fact, one of the critical success factors for profitability as well as productivity. Yet configuring a supply chain strategy that aligns with the business strategy, and organizing both people and process around that strategy, are no easy matters. Just as there is no universal definition for the supply chain organization, there is no one-size-fits-all approach for crafting that organization. There are, however, several characteristics of effective organizations that should be incorporated into any design, and we ll address them here: The organization is aligned to support the overall business strategy. There is agreement on what internal core competencies are needed. The organization is capable of executing all required supply chain processes whether through internal capabilities or strategic partnerships with companies that can provide required competencies. Metrics are in place to provide objective information about organizational effectiveness. A set of practical design principles is used to structure and populate the organization. In today s business climate, of course, adaptability and agility are key. Your strategy may be changing more frequently than ever, and your supply chain organization needs to keep up with the changes you re making, whether large or small. Such restructurings may require that you redefine roles and responsibilities to focus on changed objectives, reduce process complexity, or develop new competencies and skills for newly required capabilities. Or you may simply have the need to clean house or redeploy resources that are not performing to expectations. Organizational change is also required as you make changes in how you evaluate supply chain performance. In a traditional functional organization, supply chain metrics are often designed to motivate behaviors that optimize performance within a specific department or function. As your supply chain strategy and associated process design evolve, you will need to embrace a new set of metrics designed to motivate behaviors that optimize performance for the company as a whole. If your organization is not restructured in a way that facilitates achievement of these objectives, target performance levels will not be reached, and the entire strategy may be questioned. The converse is also true: The metrics you put in place to measure supply chain performance must support and encourage the behaviors you expect of the people within your organization. Design Considerations What are the issues and challenges that you should consider in designing the appropriate organization for your supply chain processes and strategy? Traditional opera- 2003, 2006 PRTM 1

2 tions organizations are functionally oriented. That is, key supply chain activities and associated groups report directly to their relevant functional managers. A typical functionally based organization may have logistics (receiving and shipping) and manufacturing reporting to an operations vice president, and separate procurement and customer order-management groups. This type of organizational structure was typical of many companies in the 1970s, and it is still quite common today. In the 1980s and 1990s, companies began to transition to organizational structures that grouped many, but not necessarily all, core supply chain functions within one department. Many of these companies still had the position called vice president of operations, but the responsibilities expanded from a purely functional orientation: These managers now had responsibility for management of the supply base and fulfillment of customer orders in addition to manufacturing and physical logistics. We call this the Transitional Supply Chain Organization (see Figure 2). Most transitional organizations do not have customer order-management reporting to the vice president of operations; the most common home for these activities is within the sales or sales operations function. It was not until the mid to late 1990s that the term supply chain came into vogue and it was then that we began to see organizations with positions called supply chain manager or vice president of supply chain. This period, of course, also marked the beginning of the now widespread philosophy of the supply chain as an end-to-end process. Recent Design Models Two primary models have evolved that have established supply chain management as a separate function or entity within organizations. In both models, a supply chain management group is responsible for achieving cross-functional operational objectives, such as inventory days of supply, order-fulfillment lead time, or customer on-time delivery. The difference between the models lies in resource management. In the first model, which we call the Partially Integrated Organization, the supply chain manager does not have full control over the resources responsible for executing the supply chain strategy. In the Integrated Organization model, he or she does have full control over these resources. While at first glance, the Transitional and Integrated models may look very similar, the difference is much more than a few shifts in box position on the organization chart or renaming of the various functions. The concept of a discrete supply chain organization as depicted in the Integrated model is relatively new. Figure 1: Functional Supply Chain Organization R&D Purchasing Materials Planning Buying Operations Logistics The Integrated Model Many companies still think of their supply chain organization as a set of functions that complements their manufacturing or operations (receiving, production, logistics) departments. But if an organization is to provide effective end-to-end supply chain management, it should encompass all the people responsible for development and execution of each of the core Plan, Source, Make, Deliver, and Return processes, as well as the supporting infrastructure. 2003, 2006 PRTM 2

3 That means grouping these processes under one senior manager, but more importantly, it means giving that manager a set of cross-functional performance objectives and the resources he or she requires to meet these objectives. This is a key characteristic of what we call the Integrated model of supply chain organization. It is a more advanced form than its predecessors, the Functional model, the Transitional model, and the Partially Integrated model. One of the biggest challenges in supply chain operations is determining how to restructure the organization. You might not necessarily have to completely overhaul your existing operations functions to do so. Neither might you have to create a new department or invent a new vice president. You will have to think about your supply chain organization as the collective set of departments and individuals that have responsibility for executing each of the core processes. So even if these departments and individuals are not grouped together through a large-scale reorganization, you should consider some level of formal change to the existing organizational structure. This may mean consolidating two departments to eliminate a functional boundary or process handoff, re-scoping the responsibilities within a particular group, or realigning existing groups to focus on specific channels or customers. Consider a company that has established the strategic objective of being the low-cost provider within its major markets. In order to ensure that required margins are achieved, it will need to create a supply chain that minimizes material and production costs. The process requires a thorough assessment of existing capabilities and identification of any gaps between currently available skills and those needed to support the strategy. This has far-reaching implications for both the process design and the configuration of each process element, as well as for the supporting organization. The company will need to develop superior supplier management capabilities and must establish a sourcing organization that can successfully negotiate lower material costs and closely monitor supplier capabilities. At the same time, the company will need to ensure that its planning organization is able to provide an accurate forecast Figure 2: Transitional Supply Chain Organization Figure 3: Partially Integrated Supply Chain Organization R&D Operations R&D Supply Chain Logistics Supply Supply Purchasing 2003, 2006 PRTM 3

4 of future demand in order to negotiate the desired prices and secure the required supplier commitments. The company must take care to ensure that its processes leverage the best practices associated with highly efficient production, ongoing material cost reductions, and regular forecast updates. As the process design is confirmed, the likely impact on the organizational structure must be analyzed, and specific organizational requirements must be identified this is the gap analysis described earlier. These requirements may include a wide range of elements, such as a cross-trained production workforce, a centralized supplier development group, or a new position with overall responsibility for demand management. Stratex Networks, a leading provider of digital microwave radios, provides a case in point, illustrating how capabilities within the supply chain organization can be developed and improved as supply chain strategy becomes more focused and corresponding process changes are made. In early 2002, the company made a strategic decision to focus on improving its return on assets and raising customer service levels by elevating order-delivery performance and reducing order-fulfillment cycle time. Among other changes, this meant a fundamental overhaul of the company s operations strategy and a move to outsourced manufacturing. The company embarked on an aggressive schedule for the transfer of production from San Jose, California to a manufacturing partner in Taiwan. Figure 4: Integrated Supply Chain Organization In parallel with the transfer of manufacturing, Stratex s Vice President of Global Operations Robert Schlaefli, launched an initiative to fundamentally redesign the company s core supply chain processes to support the new manufacturing model. The company needed to maintain strong relationships with several key suppliers while transferring responsibility for most materials purchases to its new manufacturing partner. Stratex was also concerned about the communication challenges inherent in an outsourcing relationship and wanted to ensure that customer requirements could be collected, integrated, and acted upon as quickly as possible. Many of the new processes were designed to optimize the flow of an order as it progressed through the configuration and manufacturing process. For example, the criteria for accepting a customer order were updated and checklists were put in place to ensure that all critical information was available prior to order entry, eliminating the delays that occurred when required data had to be researched after the order was already in process. But Stratex still had information gaps between functional groups and confusion about which function was ultimately responsible for order-delivery performance. While regional sales administration, finance, order management, planning, procurement, and traffic were each responsible for a subset of the data included within each sales order, none had ultimate accountability for ensuring R&D Supply Chain Supply Purchasing 2003, 2006 PRTM 4

5 that commitments to the customer were made on a timely basis or kept once they were made. Stratex quickly concluded that the numerous handoffs inherent in its current organizational structure would not support the new strategy, noting that it was much more than a factor of greatly reduced staffing levels. The need to improve delivery performance and the decision to outsource production really elevated the importance of the order-fulfillment process. Stratex needed to start thinking about the management and scheduling of orders, the configuration of the product, and the shipment to the customer as one process, not three or more. Prior to the outsourcing move, Stratex had a very traditional operations organization, with distinct functional groups responsible for order entry, order management, production, planning, sourcing, and logistics. While the groups interacted frequently, Schlaefli felt his people were passing information back and forth, as opposed to sharing common information. Communication about delivery schedules whether among functional groups or with customers was inconsistent, and both salespeople and customers frequently expressed their frustration about their inability to get an accurate order status (see Figure 5). Stratex s solution was to re-craft the organization, with a new group focused on managing the entire order-execution process, from the time an order is entered to the time the product is shipped to the customer. Stratex created an order-fulfillment team and moved the traffic functions within this new group. Links were tightened between customer order management, planning, and procurement by physically moving the groups closer together and requiring that order schedules be confirmed in person rather than via voic or communications between the three groups. Once the organizational structure was defined, (see Figure 6) Stratex began to revise the roles and responsibilities within the planning and procurement functions. The change to an outsourced manufacturing strategy meant that Stratex no longer had the luxury of modifying its production schedule as customer requirements changed or were more clearly understood. Instead, the company had to provide a Figure 5: Stratex Operations Before Figure 6: Stratex Operations After Sales Global Operations Global Operations Regional Confirmation Demand Coordination Production Receiving Assembly Materials Planning Procurement Inventory Control Shipping Traffic Customer Service Coordination Traffic (San Jose) (Taiwan) (Europe) Materials Planning/ Procurement Supplier Inventory Global Cycle Counting Customer Service Demand 2003, 2006 PRTM 5

6 forecast of production requirements to its manufacturing partner well in advance of when the products were actually needed. Stratex needed new roles within both planning and procurement. A new supply chain meant buying only a few materials from a limited number of suppliers, but each of these parts was highly complex and quite expensive. Stratex couldn t afford to run out of something or have too much. The company was also concerned about flexibility because a third party was now responsible for production. Stratex needed to focus a lot of attention on demand management and on communicating an accurate picture of anticipated demand to suppliers. While the new organizational design was not put in place all at once, Stratex kept the end-state in mind as the company began to use the new processes. Our new model meant that the buying and material planning tasks were going to blend, said Schlaefli. You can t just take a tactical buyer who has been placing purchase orders by following system-generated recommendations and suddenly turn him into a planner who needs to be able to make decisions without completely concrete data. We had to do a lot of retraining and, in some cases, some strategic hiring, in order to develop the organization we wanted. Stratex provided on-site APICS (The Educational Society for Resource ) training for all buyers and planners and hired several new employees with significant experience in sourcing and master-production-scheduling processes. The restructuring was completed over a period of several months, roughly following the schedule of the manufacturing transition. The company met an aggressive schedule to ramp production at their manufacturing partner with no negative impact on customer service levels. At the same time, the increased focus on the planning process and the associated upgrade of planning skills allowed Stratex to cut inventory liabilities dramatically. The new organization was a key factor in Stratex s ability to realize the benefits of the company s new strategy. This didn t happen overnight, noted Schlaefli. Having a map of where we wanted to go with the organization made it a lot easier to implement the necessary process changes. It s clear from this example that supply chain organizational design can have a direct impact on a company s ability to optimize material and information flows and do a better job of meeting customer needs, all with significant impact to both top and bottom lines. CONTACTS PRTM Director Shoshanah Cohen at scohen@prtm.com or PRTM Director Rick Hoole at rhoole@prtm.com or PRTM Director James So at jso@prtm.com or _december , 2006 PRTM 6