What makes a modern supply chain professional?
As recently as ten years ago, the impact of the Internet on business was minimal. Connectedness between supply chain sites such as factories and warehouses as well as operational links to other business functions like research and development or sales was limited at best. The dominant model for finding supply chain talent boiled down to recruiting managers with direct experience in narrow functional skills like logistics and transportation, inventory control, or purchasing. Professional associations played a key role by certifying mastery of specific techniques. For site-specific jobs, unburdened by the 24x7 pressures of our post-Internet global supply chain, these largely vocational talent pools were adequate.
An interesting thing happened, however, along the way to 2009. Supply chain professionals, especially those steeped in principles like Lean and Six Sigma were among the first to really grasp the implications of our new connectivity for the materials management core of all these disciplines. Inventory gradually morphed from being regarded as an asset to more of a liability, and practitioners saw that integration from customer demand back through distribution all the way to procurement of raw materials was the key to business performance. Once supply management fully embraced the outsourcing of manufacturing to third parties in low-cost countries, the picture of our 21st century global supply chain had come into focus--and with it the emerging ideal supply chain organization.
Unfortunately, the degree programs in many major universities were still largely teaching to functional skills rather than the broader view demanded by this new global supply chain. At one level, the concept of "value chain," as popularized by Michael Porter of the Harvard Business School, had begun to take root. However, this was more often applied as a purely conceptual tool used by consultants to help business rethink strategy rather than as an operating blueprint for execution.
The need for a strong voice pushing for strategic relevance combined with practical applicability had become clear. Enter the Global Supply Chain Professional Development Committee.
Academia, Industry and Associations Converge
More than two years ago, a group of recognized supply chain leaders including Procter & Gamble, Intel, and Boeing, along with several universities including Michigan State and Penn State, assembled to tackle this issue. Insufficient talent pools both in total recruiting numbers and competency coming out of universities, as well as too few alignment points between industry; academia, and professional societies like APICS or the Institute for Supply Management (ISM), were hindering the development of cutting-edge supply chain organizations. The group launched the Global Supply Chain Professional Development Committee with the intent of closing not only the talent gap, but also the persistent misunderstanding of what defines the modern supply chain organization.
Building the Talent Attribute Model
As part of the mobilization of this defined vision, AMR Research was commissioned to construct the industry study early in 2008. During the survey development cycle, it became clear that part of the challenge of constructing a comprehensive supply chain curriculum stemmed in part from a lack of clarity around the responsibilities of modern supply chains. Jake Barr, a supply chain executive from P&G, drove discussion toward a wider definition of how the modern supply chain works with the rest of the business to satisfy the ever-changing demands of customers. AMR Research worked with all members of the group to distill the Talent Attribute Model shown in Exhibit 1.
The core of many supply chain professionals' toolkit has for some years been built on the SCOR (Supply Chain Operations Reference) model. The four most essential building blocks of SCOR are Plan, Source, Make and Deliver. Each of these has of course been deeply detailed over the years by the Supply Chain Council and its body of practitioners in industry. In layman's terms these four building blocks align closely with traditional business functions of forecasting and planning, purchasing or procurement, manufacturing or production, and finally logistics and distribution. Exhibit 1 shows these four (along with three new disciplines, which will described later) in the center of the circle representing the core functional skills of a modern supply chain professional.
The three additional core skills shown on the diagram reflect the new influence of 21st century realities on the day-to-day worries of a well-rounded supply chain practitioner. They are first, NPDL, which means new product development and launch, customer service, and post-sales support. As skills demanded of supply chain, these three "stations" (as the committee came to call them) represent areas of overlapping responsibility with other important business functions including research and development, sales, and service. The term "station" stuck because these functional skills do not necessarily come with hard-line organizational ownership, but rather a duty to share knowledge and accountability for the flow of work across functions. For example, mastery of the NPDL station in a typical consumer electronics company doesn't mean engineering reports to supply chain, but that strategic sourcing collaborates with platform engineers to choose components that are low cost, reliably available, and easily assembled.
Outside the core circle of functional skills are four important enabling stations that an ideal supply chain professional should master. The first of these stations is Performance Measurement and Analytics, which means the ability to choose and define appropriate measures for supply chain processes as well as mastery of tools and techniques to dig into operating data for both post-mortem analysis of work and predictive analysis of trends. The importance of this station is easy to overlook because so many numbers and metrics dominate discussions with sales, finance, and other disciplines that we sometimes get the impression that performance measurement is someone else's job. This is wrong. Supply chain professionals are actually better positioned to master this station than other disciplines because supply chain cuts across so many functions of the business. For proof, consider sales' view on performance measurement, which focuses almost exclusively on top-line revenue. Anyone who has experienced sales making their number by selling an unprofitable or just plain impossible bill of goods knows the danger of performance measurement that lacks balance. Supply chain, by its nature, is all about tradeoffs. Plus, the supply chain discipline tends to be filled with people who are not afraid of numbers, mathematics, or information systems.
The second enabling station is Technology Enablement. Like Performance Measurement and Analytics, this skill is often mistakenly seen as someone else's job, in this case the information technology function. Certainly, the CIO's organization owns accountability for most of the enabling technologies associated with managing the overall business, including typically the enterprise backbone, which is generally an ERP system. However, years of analysis by AMR Research and practitioners around the world has shown that functional requirements in supply chain, from demand forecasting to warehouse management, rarely come "out of the box" from an ERP vendor. Worse, the incentives for CIOs clearly favor standardization of software applications; this means the rollout of needed IT tools too often happens according to the release schedules of big vendors and/or the project plans managed by the big systems integrators. Today's supply chain professional needs to know what IT tools are available, how to select them, and how to get them installed and running. As with NPDL, this generally doesn't mean owning IT, but rather actively influencing the wider decision-making authority.
The third enabling station is Governance. This area is probably the most challenging for the typical supply chain professional because it requires assembling skills from the other stations and mirroring decision-making processes elsewhere in the organization. The need for standards in data definitions, operating procedures, and even ethical or regulatory compliance rules demands an ability to understand far-reaching implications of what may seem to be trivial decisions. For example, special delivery concessions for one big customer may seem fine in isolation, but multiplied across all customers can ruin the operation as a whole. Similarly, purchasing lower cost parts from a supplier with a poor safety record might work once, but over time is likely to lead to trouble. Hewlett Packard discovered this reality as it drove responsible sourcing in its largely Chinese supplier base. The main finding after hundreds of detailed reviews was that safe, responsible suppliers were also dramatically better in quality and on-time delivery. This type of outcome depends on a strong governance process since one-time incentives clash with longer term goals.
The final enabling station may be the most important. Strategy and Change Management implies vision. This is where the 21st century supply chain professional is most different from his or her predecessors. Where once supply chain served the factory, delivering materials or parts into production and shipping finished product to customers, today's supply chain is the entire material flow of the business. Many of the world's best supply chain organizations run no factories at all. And yet, products are planned, sourced, made and delivered. Often, it is the very clockspeed at which the supply chain can redefine its network that separates winners from losers as technology and consumer demands change.
The key insight here is that supply chain professionals today are really value chain engineers--experts in the art of the possible and the profitable. R&D may discover the breakthrough and marketing may whip up customer buzz, but there is no business until supply chain scales it to profitability. Grasping this equation and being able to influence others in the business is the highest art of the modern supply chain professional. Tellingly, the best will be those who can build on a core functional skill set, as shown in Exhibit 1, and can use each of the enabling stations surrounding the core to carry the day with the CEO. It may all start with inventory control, but it ends with shareholder value. Strategy and Change Management means mastering all these levels of debate.
How Close Are We to the Ideal?
The Global Committee rallied around the survey and data collection process ensuring that we captured a strong, useful sample. When the survey closed, 287 companies had responded and our analysis yielded several valuable insights both about what the ideal supply chain organization looked like and how companies reflect that ideal.
We witnessed substantial diversity across the individual company's span of control. (See Exhibit 2). Perhaps the most familiar supply chain function--logistics--was the most widely present in companies surveyed. Over 77 percent of the companies include the Deliver station in their span of control. Also well represented were Plan (68 percent) and Source (63 percent) among companies surveyed for which stations were within the control of the supply chain organization. Next most common was the Customer Management function. While this was reported as within the supply chain span of control by 52 percent, there were substantial differences in what this meant. Customer fulfillment, for instance, which is an extension of order management, is fairly common. An example would be a large consumer packaged goods company whose fulfillment process to grocery retail customers is clearly a supply chain function. It's much less common to find customer management responsibilities within supply chain organizations where the product is an industrial product like heavy equipment.
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One interesting, and troubling finding is the small percentage (a minority 40 percent) of companies for whom Make is within the span of control of supply chain. This appears to hearken back to the days when the factory was king and supply chain served it, rather than the other way around. The examples on both sides are fairly stark and obvious--one automotive supplier, for instance, was a deeply manufacturing-led organization with supply chain clearly in the subservient role to manufacturing management. In this example, new management has since closed several plants while looking for lower cost locations in future. The opposite example--a mobile devices manufacturer--already has its production locations in low cost areas and runs manufacturing decisions through a broader supply network model to decide where to produce and how much to make in any given location. Its ability to shift production has helped the company respond quickly to changes in technology with new plants handling ramp-ups in volume, while obsolete capacity is returned to the contract manufacturer.
Far less commonly found under the supply chain's span of control are two areas that may end up offering the biggest impact to companies able to master them. The first is NPDL, which less than a third (31 percent) of companies include in the supply chain organization's span of control. While this finding is not a surprise, it does indicate that most companies persist in throwing products over the wall from R&D or product development to supply chain to source, make, and deliver the goods. The biggest issue here has to do with speed. In today's information-enabled world, new product development and launch is under ever greater pressure to rapidly define, design, promote, supply, and support new products. A classic internal metric of success is first pass yield. For organizations unable to include NPDL within the supply chain's span of control, first pass yield will generally suffer as new materials, formulations, and processes are debugged after release to manufacturing. Integrated product and process engineering prevents much of this trial and error--and in the process achieves higher first pass yield as well as shorter time to market. IBM pioneered this process back in the 1990s and has since been among the most aggressive in linking supply chain to product development.
Finally, Post-Sales Support lags all stations with no more than 25 percent of companies surveyed including this within supply chain's span of control. It is reasonable to think that different industries have radically different requirements here--from an extreme such as Komatsu for whom service is a huge part of the customer value proposition to food and beverage makers where post-sales support hopefully never comes up at all (think consumer recalls, not retailer service). While we might expect this figure to remain well below 100 percent, it seems reasonable to expect post-sales support to grow as companies find more profit opportunity attached to the life of the product in use rather than just at point of initial sale. The obvious examples are consumer or business electronics products, which often have very slim margins at initial sale but may generate profits with software, consumables, or even service revenues once in use.
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In terms of the enabling skill sets, about two thirds of companies include Performance Measurement and Analytics as well as Strategy and Change Management as part of the supply chain span of control. (See Exhibit 3.) These reasonably high figures are encouraging as they suggest that companies have largely begun to see supply chain as a competitive differentiator. Recent survey data collected at the Extended Supply Chain Conference held in London in March 2009 showed that only a small percentage (11 percent) of companies believed that their organizations viewed supply chain as a "cost center." A much larger portion (64 percent) felt that they were regarded as either an "important enabler" or a "competitive weapon."
Of some concern however, is the figure (41 percent) that indicates a minority of companies include Technology Enablement as part of the supply chain span of control. The issue is that information systems are an absolutely essential part of running a 21st century supply chain and that only supply chain professionals are equipped to decide which tools will work. The distinction could be thought of as that between a system for managing human resources, for instance, and one managing available-to-promise. In the first instance, internal operational procedures largely define functional requirements, while in the second, the driving force is competition at the point of sale, when the supply chain must commit instantly or lose the business.
"Going live" on an application means absolutely nothing if it doesn't immediately support the flow from customer demand to profitable supply response. No one but supply chain is capable of defining this functionality. That 60 percent of companies leave it to IT may explain why so many software projects have failed to meet business objectives over the past ten years.
While the team was surprised that it could find few examples of common responsibility between organizations, there was clarity about the forces at play that demand serious consideration for both organizational and academic design and governance. One of these elements was globalization where companies have broadly moved into all comers of the world. This has created enormous organizational complexity, and rendered independent operating groups anachronistic. One technology provider we interviewed expressed the difficulty in implementing and supporting poorly integrated multi-national entities noting, "We see that organizations cannot continue to be narrow and support fiefdoms."
Furthering the complexity driven by this expanded scope is the simultaneous flattening of organizations. Whether through technology enablement or simply cost cutting, supply chain leaders have been asked to do much more with few if any additional resources. Advanced, best-in-class supply chains have achieved breadth of responsibility over many years of concerted strategic change. The case study of one large technology company shown in the accompanying sidebar summarizes the journey from a silo mentality to a much more integrated, 21st century supply chain organization. As these developing supply chain organizations proved their worth in primary Plan, Source, Make, Deliver capabilities, they grew to add broader planning, strategy, and new product innovation capabilities.
The challenge has been twofold: gaining responsibility by proving that broadly integrated supply chains can drive unprecedented performance and accomplishing this without a significant increase in resources required. The collateral damage of this corporate expectation can stress the organization's ability to execute as well as confuse employees' operating priorities. A large consumer product's organization HR leader described the risk to us, "The more right-sizing occurs within an organization, the greater concern employees and recruits have about growth and development."
How Do the Supply Chain Top 25 Differ?
Additional research has radiated from the initial study that begins to connect effective organizational design, better supply chain performance and the development of more comprehensive academic programs. First, we analyzed AMFI Research's Supply Chain Top 25 organizations, and found that they have demonstrably greater spans of control. Notable is the far higher propensity of Top 25 companies to include within the supply chain's span of control Customer Management, NPDL, and Post-Sales Support. The differences between Supply Chain Top 25 companies and the general survey population are shown in Exhibit 4.
This data suggests that companies that were highly ranked for overall supply chain leadership are those who assure visibility and collaboration across the supply management, demand management, and product management areas of the business. It is also interesting that among Supply Chain Top 25 companies 100 percent include Strategy and Change Management as a key supply chain responsibility. Clearly, these companies respect the competitive edge supply chain gives business. It is also interesting that where Technology Enahlement is within scope for only a minority of companies overall, the Top 25 assign this station to supply chain more than half of the time (56 percent).
Our deeper questioning why/how Supply Chain Top 25 organizations would have a broader span of control as compared to all other organizations led to a research project focused upon organizational design. We had witnessed the fact that organizations struggling to find the "right" employees in many cases are mired in legacy structures that limit career development options, ensure a lack of integration required for successful global orientation, and provide competing priorities to academic institutions regarding the competencies needed from students.
Building on prior research conducted by Professor Morgan Swink of Michigan State University to factually understand attributes of top performing supply chain organizations, we created an organizational construct that we could test against self-rated performance. A model was built identifying five organizational design elements, and a one-time dimension relating to organizational maturity. (See Exhibit 5.) We surveyed 90 companies across industry groups and conducted a series of follow-up interviews with primarily top 25 organizations.
The results, shown in Exhibit 6, were powerful. While supply chain maturity was a statistically significant determinant in performance, the top rated supply chains falling into approximately the top 7 percent of our sample also showed that they are more centralized, integrated, global-execution oriented, and focused on performance measures that are profit oriented. These organizations more than likely contained strong, transformative leaders who were neither technocrats nor solely focused on manufacturing execution. It is clear that transformative, supply chain leaders are now de rigueur in top organizations. These unique hybrids are able to harness the breadth of responsibility, utilize inherent process interdependencies, assess technical complexities, and effectively articulate this vision to all levels in the business.
When asked about the requirements of a supply chain leader today, Linda Cantwell, IBM's Vice President of Logistics and Supply Chain at IBM, noted, "Strength of leaders is important. You can have the strongest and most important supply chain leader in place, but if the CEO doesn't get it, the leader is going to have a hard time. The supply chain leader needs to be versed in translation..." We asked the question, "Where do we begin to create the transformative leaders who meet the significant criteria just outlined--folks who can fight for effective organizational design and focus the operation on the right priorities?" The answer came back: The university system.
Universities Need to Be Pushed
Understanding the connection between current business forces and the type of people needed coming out of academia has driven intense debate. In the year since the first report was published, the team has participated in almost weekly interviews, internal meetings, and press discussions that have reinforced the agreement among supply chain leaders of the urgent need to find, retain and quickly integrate supply chain talent into their organizations.
In speaking recently with several of the core team members about their perspective in the year since the study was completed and their future expectations for taking on talent gaps, John Dischinger, director of IBM's Integrated Supply Chain, expressed optimism that the players can actively build a cross-industry model to solve the problem. "It is such a hot issue in the industry," Dischinger said. "When we present this topic in a public forum, it is not uncommon for a number people to come forward handing us their cards and telling us they want to get involved and are anxious to get going." Jake Barr from P&G concurred: "I have been pleasantly surprised by the response and receptivity to the issue--it appears that they [industry] have been waiting for us to step up."
The team also got a sense of the magnitude of the problem regarding the global numbers of personnel at issue. Nick Little from Michigan State University commented, "I am amazed at the sheer volume of demand for supply chain talent and how many companies can't get the talent they need with the right qualifications. The [industry] focus on picking up people from other disciplines and having to train them highlights that unsatisfied demand is much larger than even we anticipated."
It is clear that industry needs to push academia and professional societies to build a sustainable model. Professor Dave Closs, chairperson of the Supply Chain Management Department at Michigan State University, was candid when asked about the prospect of academia changing required curriculum without an industry push. "The challenge is that it might take decades to change curricula to incorporate functional knowledge, globalization, technology, and leadership skills into integrated supply chain programs," Closs said.
Jake Barr agreed with the potential challenges in changing the model currently in place: "There are skeptics, though, surrounding the belief that something can be productively done about this topic--a fair number of items need to be clarified. How will the sharing occur? How are best practices identified and what role do universities play in the management of the process as well?" In the collective team's view, the industry push is a logical starting point to highlight current needs and to begin building the governance model, curriculum, and ultimately the delivery and feedback mechanism that can close the gaps.
A Collective Responsibility
The supply chain discipline has changed radically in the past 20 years as globalization and Internet connectivity have reshaped the rules for manufacturing, sourcing and logistics. Companies' approach to the organizational structure and spans of control required to compete in this new world vary widely, and unfortunately sources of fresh talent are still struggling to keep up with the demand. The best companies seem to be those who view supply chain as a source of competitive advantage, rather than just a series of functional cost centers. Such companies are far more likely to include disciplines around new product development and launch, customer management, technology enablement, and even manufacturing itself as within the supply chain organization's scope. Universities, however, as a favored source for talent need a new model of supply chain skills that encompasses this broader scope if the talent gap is to be closed. Industry has a duty to push the academic community to understand, adopt, and develop this mentality now.
Milestones on a Supply Chain Journey
Here are the milestones of one high-tech manufacturer's 18-year supply chain journey:
1990--No centralized planning, customer service, or logistics. All are scattered among geographies, businesses, and disciplines.
1990-1995--Began five-year process for logistics decentralization. Included the assignment of a V.P. of logistics that owned the process.
1994-Added planning. Added long-range capacity planning, operational planning, and embarked on new ERP implementation.
1997-2000--Integrated warehouses built. Built four integrated warehouses to store both raw materials and finished goods at key assembly sites.
2004--Added customer service areas. Became Customer Fulfillment Planning and Logistics.
Today--Appointed executive V.R of supply chain. Responsible for all technology, materials, and customer-facing activities, and charters projects based on the ownership and wisdom of the broadened organization.
David Aquino (email@example.com) is a research director in AMR Research's Industry Value Chain Strategies Service. Kevin O'Marah (kornarah@ amrresearch.com) is the Chief Strategy Officer at AMR Research.
EXHIBIT 4 Top 25 vs. All Companies Functions top 25 All companies Deliver 78% 77% Plan 67% 68% Source 67% 68% Customer Management 67% 52% Make 56% 40% NPDL 44% 31% Post-Sales Support 33% 25% Enablers top 25 All companies Performance Management and Analytics 78% 69% Strategy and Change Management 100% 64% Technology Enablement 56% 41% Governance 33% 31% Source: AMR Research Note: Table made from bar graph. EXHIBIT 5 Six Supply Chain Organizational Design Elements Organizational Design Element Definition 1. Organizational How long the supply chain organization Maturity has existed 2. Supply Chain Business unit oriented to corporate Strategy centralized 3. Authority/ From functional (one or two process stations, Responsibility all the way to integrated (7 to 11 process (or Process Span) stations) 4. Scope of influence One or more work groups in a specific location through enterprise wide (worldwide) 5. Execution Local execution through global execution Orientation 6. Performance Entirely cost reduction focused through Priority to entirely profit focused Source: AMR Research
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|Author:||Aquino, David; O'Marah, Kevin|
|Publication:||Supply Chain Management Review|
|Date:||May 1, 2009|
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