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Transforming Enterprise Supply Chains to Master the Turbulent Operating Environment
Author : Dr. John Gattorna is Executive Chairman of Gattorna Alignment
Thursday, January 31, 2019

With the onset of economic nationalism in the US and Europe, and the corresponding trade wars building between former trading partners, supply chains everywhere are being disruptedEnterprises  must take a step back and decide how best to manage this new and increasingly difficult situation, which is disrupting the flow of goods and services across borders. Dr. Gattorna describes an approach based on the proprietary model developed by his company, Gattorna Alignment, and field tested over the last two decades in global companies. 

The world is in a piquant situation. Corporate clock speeds have increased. It is all about speed, speed, and more speed. Technology is evolving rapidly – both as a disruptor and as a solution. At the same time, supply chains are all pervasive. You go to a supermarket, pick up a product – there it is – it is the end of the supply chain. Right from the financial crisis of 2008 which nearly brought the global supply chains to a standstill, we are constantly under the threat of disruptions. Some led by technology. Others by macro-economic and geo-political developments.

Now is the time for corporate leaders to think about transforming their businesses and get ahead of the tsunami of disruptions and uncertainty that is coming. India is uniquely placed in this aspect. Supply chains in India are still at a nascent stage. Hence, India can learn from the mistakes of the developed world and leapfrog ahead.

The first thing managers should do is to increase the rhythm of the business. Charles Fine spoke about clockspeeds. We need to speed up the revolutions in our business cycles – from new product development, raw material sourcing and getting the product to the customer. If we are doing it twice a year, we need to get it up to 10 or 12 times a year. We are seeing it in fashion companies and hi-tech companies now. The great advantage of that is that as you lift your game and make decisions faster, and getting products out faster, is that you do not need as much inventory. And more important, can cope with volatility.

The second is precision – a word not spoken of in the supply chain context. We are in a world of restricted resources. We need to get rid of the over-servicing we are doing. We need to be more precise in delivering the value proposition to our customers.

These two factors roll up into transformation. It is time managers think about transforming their businesses, starting from taking a view of where they are and where they want to go. Once the ends are fixed, we can start navigating our course. The core principle is to precisely think about how to transform businesses. Some of the forces driving change in our supply chains are: Omni-channel and e-commerce Omni channel ia about providing multiple touch points for a customer and integrating them so that you know a customer who has purchased in one channel, had also picked up another product through a different channel at a different point in time.

Disintermediation is happening through Blockchains, sustainability is coming back as firms realize the restrictions on resource. Social license to operate is very important. Companies putting up their plants need to convince all stakeholders that it is win-win for everyone. In parallel, firms have to build capabilities – some of them firm wide, others individual. These range from analytics to AI, IoT to Blockchains, and Robotics to 3D Printing.

We inherited a business structure which was evolved during the industrial revolution days – for the last 200 years we developed vertical functions, even when the supply chains were runninghorizontally. A buildup of expectations by the customers is forcing companies to re-think their supply chains.This is a classic leadership problem – we have an organization structure that is vertical and a supply chain that is horizontal. We are 90 degrees out of phase in our companies. And we spend the rest of our lives in crisis. The goal is to keep the vertical silos, but create clusters of customers that can drive the supply chains.

Extensive field study, spread over 20 years, has shown that wherever there humans buying a product or service, there are four or five dominant behaviors that will cover 80 percent of the buying behavior. There are a total of 16 buying behaviors, but five are dominant. Once firms know that, they can reverse engineer their supply chain, putting together teams, appropriate KPIs, appropriate L&D, technology combinations, all the way back to the supplier base, looking for suppliers who can support the customers buying behavior.That is the world we need to move into.

Which brings up the concept of rhythm. Every customer has a specific buying cycle. If the firm is in sync with the buying cycle of the customer, then it is a happy situation. But if the natural cycle within the firm is less than the natural cycle of the market, firms will continually be in a crisis mode. On the other hand if firma have the ability to increase the cycles through faster decision making, better quality decision making, using technology and data, getting better quality managers, then firms will end up ahead of the market, and be able to absorb any volatility.

The trick is to get the four factors to line up – market place, strategy, culture and leadership style – remember, it is difficult to get these four lined up, because they are constantly evolving. The market place is moving. So are the expectations of the customers in that market place. The fundamentals of any business is to understand customer expectations. Firms should be able to narrow it down to a few major expectations using the five dominant customer behavior patterns.

One that is  done, it is relatively easy to develop a value proposition and strategy for the firm. Firms can then re-structure their people by putting together sub-cultures – a sub-culture of relationships to support the collaborative customer, a sub-culture of cost for those who are looking for a lean supply chain. Or a sub-culture of speed for the agile supply chain. Agility does not happen by chance. It has to be engineered. Firms should look for traits in the managers which can support the customer segment. Firms like Spotify, Zara, Adidas and Li & Fung are doing that.

This is called outside in thinking. The problem is supply chain became a management discipline in the past 50 years or so. And during all this time we have been building our supply chains in an inside out basis. Firma are taking a view of what they believe the customers want, use props like NPS scores, which are opinions of customers, which may not be valid next week! Firma have not done the basic homework about understanding the core expectations that do not change.  Value systems do not change. Behaviors may change from time to time. A loyal customer may become a cost conscious customer in a downturn. But when the economy does well, she will revert to a loyal customer.

This led managers to create a static supply chain and build in flexibility when they saw the customer move. This has created exceptions and costs. A better way will be to hard wire four or five different configurations and trigger changes as customers float up and down the behavior spectrum. That way firms can get flexibility without added costs.

Most firms will have a base load of 40 to 50 percent of their products which have predictable demand patterns that are stable and the rest is volatility. When you mix the two, it cannot be managed efficiently. Unfortunately, under the current business models, these are mixed up and firms lose insights that are critical to architect their supply chains. If firms separate them out, and identify customers by their behavior, they can manage the base load using lean predictable principles, and the volatile part in different ways!And also charge premium for the service.

Technology alone is not the key. It is technology and our understanding of the behavior aspects at both ends of the supply chain and the internal culture and the way people behave is the key. The new age mantra is “Think customer, act Digital.” This interface between the customer behavior and digital thinking has not been resolved yet. That is the challenge and if we can work on that we will go a long way.

The goal for firms is to establish sub-cultures within the organization supporting the strategies that drive into the four or five relevant customer behavior segments; they can avoid mis-alignments that will create additional costs. It is not competitors. If firms spend as much money trying to understand the forces of darkness inside their own businesses, they would be far more successful. Forty to fifty percent of the business plans developed never get implemented – not because of competition, but because of internal resistance from teams. 

Developed By MSCorp