Tag Archives for " supply chain 3.0 "

What We Can Learn About Supply Chain Security From One of the Shrewdest Pivots In Business History

Here is a story of the fire than tipped the balance within an industry.

Two stalwarts in the mobile phone industry in March 2000 were equally impacted by the same event – a lightning fire in the chip manufacturing plant of their common supplier, Philips, in New Mexico.

Both Nokia and Ericsson experienced the business disruption to an equal extent as a result. Fire damage to the stocks was extensive.

More importantly, the manufacturing capacity was damaged and it was difficult to estimate the time for repairs.

Nokia has invested months, if not years, in creating and perfecting a robust and responsive business network, while Ericsson’s business network was relatively a middle-of-the-line affair that worked well when things were good.

After the fire, Nokia was able to see the full impact of the chip shortage on its own business, as well as the entire industry with a lot more clarity than Ericsson, and even Philips.

Moving quickly, it activated other parts of its business network to shore up supplies, to redesign some of the chips to manufacture them in other plants, and to take pre-emptive steps in the network.

Ericsson let the situation evolve at its own pace and made decisions more reactively.

The resulting gain in profitability and market share for Nokia, and the loss of these for Ericsson tipped the balance of the industry to an extent where within a few years Nokia pulled far ahead of the Ericsson which never caught up with its erstwhile equal rival.

Source: The 5-STAR Business Network http://www.5starbusinessnetwork.com

I write about The Supply Chain CEOs, The 5-STAR Business Networks and Unchain Your Corporations. My website is at http://viveksood.com

These Global Business Network Winners Know – ‘The Game Has Changed Again.’

When I explain to people that supply chain 3.0 is real, in general, I get three type of responses.

  1. Most of the McKinsey (or their clone) trained strategists ask me to show data to back up this assertion.
  2. On the other hand, more intuitive executives (mainly from sales and marketing background, as I observe) ask me to explain the benefits of supply chain 3.0.
  3. Finally, the third group – those who I call the transformational leaders ask a simple question – how can we use the power of supply chain 3.0 in effecting beneficial business transformations.

In this blog I will address the first question. I will leave for later blogs the remaining two questions and other arising questions such as: how does supply chain 3.0 differ from the previous versions of supply chains, and, why it was even necessary to ‘invent’ supply chains in the first place.

Business Network

It is an important question – “where is the data to clearly demonstrate that Supply Chain 3.0 is real?”

The data driven crowd has a legitimate concern lest a couple of isolated examples be seen as heralding a trend. Having trained at a similar top-tier consulting house during my formative years in consulting, I fully understand and endorse their questions.

Why?

Because all of us have seen people taking isolated instances and exceptions and making them so big in their own and others’ perceptions that these appear to be the predominant trends. Nay-sayers will take a few stray instances of setbacks, blow them out proportion to support their naysaying.

On the other hand, almost all investment projects also have their share of overly optimistic projectionists.

In the end, only data reveals the overall picture and clarifies the confusion.

Another reason, the usual suspects might be missing is because we looked far beyond tactical operations into the strategic contribution of supply chains to corporate results. For example, rarely has anyone tried to gauge the impact of supply chain collaboration on innovation, new product development, pipeline of products, product phasing etc.

For this reason, when I wrote the book The 5-STAR Business Network, our team did a 6 year longitudinal study of the top 1200 corporations around the world.

There were other reasons why this study was conducted – which are given in Chapter 14 of the book.

The full research methodology and the resulting ranking of the companies is also given in the book, but for our purpose here it is interesting to note that 62 companies out of the entire starting sample of the top 1200 companies in the world scored 20 points out of 25, which is our cut-off for the Supply Chain 3.0.

Firstly, the companies themselves come from around the globe – Novo Nordisk is from Denmark while Fanuc is from Japan and Falabella is from Chile. That was to be expected – if you make your research wide and deep enough you will find good companies everywhere. No country, or continent has monopoly on excellence.

Are there companies which are better than Apple and Amazon?

Interesting to note is that Apple – the darling of supply chain crowd – is only ranked #60 in the rankings.

And, due to its low margins, Amazon – just missed the cut.

So, apparently, the winners may not yet be as big as Apple and Amazon – yet they use their capital much more effectively.

So who are the top 35 companies in these rankings? You can see them in figure 1 below.

For the time being ignore the 5 colour coding, as well as funny three-letter acronyms (TLAs) in the figure. I am absolutely sure, that this figure is unlike any other figure you might have seen before. Note a few things below:

Excellence is a Global Privilege

Firstly, the companies themselves come from around the globe – Novo Nordisk is from Denmark while Fanuc is from Japan and Falabella is from Chile.

That was to be expected – if you make your research wide and deep enough you will find good companies everywhere. No country, or continent has monopoly on excellence.

So much for all the hype about the Asian century. Sure, development in Asia is creating unprecedented opportunities – but good companies around the globe are using that trend to their benefit. You do not need to be an Asian company to be excellent, but neither are all non-Asian companies uniformly good.

Secondly, because this ranking is based on study conducted over 5 years (not at a single point in time) the standards of excellence are much higher. Also, this is a global study hence the sample base was much wider.

For this reason many of the usual suspects that you might have seen elsewhere in magic circles and quadrants etc. are missing.

Strategy is what you do when you don’t know what to do; Tactics is what you do when you know what to do

Another reason, the usual suspects might be missing is because we looked far beyond tactical operations into the strategic contribution of supply chains to corporate results. For example, rarely has anyone tried to gauge the impact of supply chain collaboration on innovation, new product development, pipeline of products, product phasing etc.

But in our research, we took these into account. For details of the research methodology, caveats, cautions and warnings about not applying these results for investment decision making please read Chapter 14 of the book The 5-STAR Business Network“. This is critical because I do not want you to take the results out of context and make decision based on flawed assumptions.

Time has come to talk about the 5 funny acronyms in the figure. This is because we want to see how these are linked to the strategic contribution of supply chain management to overall corporate results.

So, what do these TLAs stand for?

Figure 2 below shows the details: Figure 2: Five cornerstones of Supply Chain 3.0

Each of these names are quite self-explanatory and most people reading this blog will not need too much explanation. I will only briefly outline them here, because detailed explanation and examples mean that I will be recreating the book The 5-STAR Business Network or a version of it in this blog. One more important conclusion needs to be drawn from the data presented in Figure 1.

So much for all the hype about the Asian century. Sure, development in Asia is creating unprecedented opportunities – but good companies around the globe are using that trend to their benefit.

You will notice that rarely is there a company which ranks high on each of the five key cornerstones of supply chain 3.0.

Yet, all the 62 excellent companies that meet our criteria for supply chain 3.0 excel in at least three of the five key cornerstones.

That shows you do not have to perfect to arrive at supply chain 3.0 – you only need spikes of excellence in at least three of the five key areas.

In the next two entries, I will write about each of these five pillars in more details.

 

HOW SUPPLY CHAIN 3.0 CAN LEAD TO TANGIBLE BUSINESS BENEFITS (Part 3 of 6)

In the previous blog entry of this series, I have outlined a customer centric business model, which is also captured in my book The 5-Star Business Network. Now let us delve into the evolution of supply chain models, or how Supply Chain 3.0 came about.

In the old model of supply chains, businesses used to relate to each other in a very linear model

The customer centric model mentioned in the previous post is still a model of last decade and later in this piece we will see the reasons for this assertion. First, let us examine the impact of this model in practice of the commerce as conducted by many companies today. Due to persistence of traditional supplier-buyer relationships, when this model is applied across multiple organisations it morphs into an unworkable hierarchical structure shown in Figure 1 below.

traditional-model-multilayer

Figure 1 – Traditional Supply Chain Collaboration Model – Supply Chain 2.0 or less

Imagine if 5 of more organisations are linked in a multi-layer structure shown above. Unfortunately, that happens to be the case with many large organisations that compete with Apple in the market-place today. While such a structure minimises cost and responds predictably to all external stimuli, it is not suitable for the world of rapid change we live in today.

Today, businesses collaborate in a robust network

Success of Apple has shown that in the next decade this model needs to be supplemented by an even more evolved model which we have called Efficient Global Leadership model (EGL model for short). In this model we recognise that no single organisation by itself is in a position to service all the needs of a customer relating to even a single product. The fact is that two or more, in general three organisations come together as a supply chain, work together collaboratively, to fulfil the customer’s need.

Customers at the heart of your supply chain

Customers at the heart of your supply chain

As shown in Figure 2, each one of these organisations work in close harmony with each other, where the research & development teams of each organisation work together as do marketing teams and even sales teams of these organisations.

To create products, and then to manufacture those products, the production teams and the procurement teams work together to put those products in customer’s hands. In such a model, close collaboration is required among the supply chain partners to create market and sell the products.

Similarly, close cooperation is also required to produce the products, move the products and store the products in such a way that highly innovative products are produced in shortest period of time at a fraction of the cost of traditional products and put in customers’ hands extremely quickly.

Needless to say, when Apple manages to put out one innovative product after another in the market place, it is not only its own innovation but also an innovation of all its partners, which is at play here. Only when companies work together in such an efficient leadership model, do they achieve the level of success which Apple has achieved over the last 5 to 10 years. Figure 3 reminds one of the team huddles as shown below:

football-team-discussionWhen an individual works on his own he is neither very efficient, nor very effective. That is the key reason, from early civilisations, humans have created organisations that give them the benefit of either effectiveness, or efficiency, or a bit of both. Figure 4, on the other hand reminds one of camel trains or dog sleds – where one animal is closely following another as shown in the picture below. Now imagine what would happen to the whole camel train, if the first beast lost its way!

camel-in-dessertNaturally, the question is why is this important? Think about it for a minute. In fact, stop reading and just reflect on the metaphors. A camel train was a great technology – but is now largely redundant. Moreover, with a limited room to collaborate, it is essentially a command and control organisation. In periods of rapid development, if such organisations stick to the tried and tested, they get left behind by their more innovative peers.

If you would like to see how Supply Chain 3.0 differ vastly from its predecessors, please read the next blog entry of this series.

Doing collaboration: The right way to improve your Supply Chain – Vivek SOOD – Global Supply Chain Group

Business Networks

Business Networks

Supply Chain Management (SCM) is an essential element of operational efficiency.  SCM is critical to business operations, therefore it is clearly important for a company to know, understand and master the supply chain.

Supply chain’s evolution can be break down into three generations. That is an easy way for companies to understand how to be more efficient and maximize the benefits of a good supply chain.  The three generations of supply chain go from supply chain 0.0 to supply chain 1.0, then to supply chain 2.0 and eventually reach supply chain 3.0.

Now, an important question should cross your mind: What are the differences between supply chain 0.0, 1.0, 2.0 and 3.0?

Supply chain evolution is quite logical. The generation 0.0 represents the absence of supply chain. Business act is then individualistic, each group is on its side working without or with very weak cross-functional communication and relationship. A company which is intending to be a well-established player in its field cannot stay at this stage.

The first main change brought by supply chain 1.0 is communication. Communication channels at horizontal level between different departments are created which is break down the silos. In order to be more efficient, people talk with each other across the departmental line and planning and scheduling become a team work. An ERP System is put into place to formalize communication.

what-we-do-bannerBut such a supply chain can become a little bit inflexible. If a company wants to overcome this difficulty, it has to expand its circle of collaborators. All the groups of the company have to take part in brainstorming and collaborate for the creation of a more structured planning environment. That is the aim of supply chain 2.0: Helping the finance to work together with operations and sales in order to establish a coherent set of integrated business plans to shape one single business outlook that can be agreed on and actionable by everybody.

The next step is to go beyond this to an attractive flexible and structured plan. How can we do it? It is time for the company to reach the supply chain 3.0 and stop taking its positions for granted. The solution is called the flywheel of supply chain 3.0: create collaboration with suppliers and customers in order to create products at lower cost and higher degree of matching with consumers’ expectations.2-300x184

 

Does Your Company Have Second-Class Citizens?

The Art of Harmonious Re-Balancing the Supply Chain

Many years ago, I was engaged in a strategic transformation project in a mid-size airlines. For some curious reasons the airline was of critical importance to the national economy and occupied a very high position in the national political totem pole. Thus, almost every occurrence, every AOG (aircraft-on-ground, an emergency) and every ATB (air-turn-back, a bigger emergency) was part of the national TV and financial journal news. These AOGs and ATBs were so numerous that under pressure from the political masters who called the shots, the company had to start a full-fledged strategic transformation project. While conducting the initial diagnostic, I was intrigued to notice an extremely low morale within the engineering department. Despite very high quality of training, and abundance of very expensive tooling and parts, most of these highly qualified aircraft engineers were almost constantly running from AOG to AOG (one emergency to next). Even the corridors were gloomy, poorly lit and had oil residues. Yet, whenever I crossed over from the engineering department to the flying staff, the mood changed diametrically. Most of the pilots were very upbeat, the corridors were luxurious, well lit and thickly carpeted. It appeared as if the airline had two type of citizens – first class citizens who were the pilots and the second class citizens who were the engineers and the rest. Over time, the resentment to this class structure had built up to an extent where the second-class citizens were either apathetic, or perhaps even somewhat antipathetic. Today, while reading Ed Catmull’s book Creativity, Inc: Overcoming the Unseen Forces That Stand in the Way of True Inspiration about the story of startup of Pixar (the maker of Toy Story and many other blockbusters, which was sold by Steve Jobs to Disney for around $4Billion), I came across a similar theme. Here is how Ed describes it:

” Now, though, as we assembled the crew to work on A Bug’s Life, I discovered we’d completely missed a serious, ongoing rift between our creative and production departments. In short, production managers told me that working on Toy Story had been a nightmare. They felt disrespected and marginalized—like second-class citizens. And while they were gratified by Toy Story’s success, they were very reluctant to sign on to work on another film at Pixar.

Pixar_StudiosI was already captivated by idea – I had noticed it earlier too, in many other companies though not to such a stark extent as the airlines example quoted above. In a hospital, I had observed that doctors were the first class citizens and the rest of the staff were second class citizens. In a steel manufacturing company, I had noticed that metallurgical engineers were the first class citizens. In a chemical company, the sales engineers who worked closely with the customers’ engineers had the most say. In one mid-size meat and livestock company, five out of top seven positions were occupied by people holding a PhD in veterinary sciences. I could probably recall dozens (or more) of such examples in a great deal of detail. In fact, coming from a prior background in the shipping industry, I could relate to this syndrome. In most shipping companies, Marine Engineers (not the Captains) carried most of the weight; they were responsible for spending (or saving) the most money on parts and maintenance. Thus, owners were always very focused on working closely with the engineers to minimize the costs. Interestingly, most airlines have not yet cottoned on to this fact, or the pilots’ unions are far too strong to do anything about it. To a large extent these biases are only natural, and to be expected. Yet, in many places they get excessive and dysfunctional. In many of the instances quoted above, the companies were a victim of such an occurrence (because that is why they were so easy to recall).Here is how Ed describes the situation in him company:

” If there was one thing we prided ourselves on at Pixar, it was making sure that Pixar’s artists and technical people treated each other as equals, and I had assumed that same mutual respect would be afforded to those who managed the productions. I had assumed wrong. Sure enough, when I checked with the artists and technical staff, they did believe that production managers were second class and that they impeded—not facilitated—good filmmaking by overcontrolling the process, by micromanaging. Production managers, the folks I consulted told me, were just sand in the gears.

Ed’s book is a good story, and worth reading. He describes in detail how he got these problems ‘sorted-out’ and got the team for the second film organized. And, the rest is history. Slight adjustment of the balance, in most of the cases here, changed the entire organizational dynamics to a very large extent. In the case of the airlines quoted at the beginning, a new role of Chief Operations Officer who was responsible for both the flying staff, and the engineering staff managed to create that balance. Without such a re-balancing act (by whatever means), all the rest of process re-engineering, planning, control, cost management and six-sigma etc. may not have yielded meaningful results. Similar slight re-balancing achieved the end goals in most other such cases too. woman-yogaIn order to keep this blog post short, I will not go in my views on how these biases (or imbalances) build up, and remain unrecognized despite leading to massive dysfunction (consider the airlines story above); as well as how to know when they are becoming excessive and how to achieve a harmonious re-balancing. Suffice it to say here that one should keep an eye on them, lest the company, blinded by its own single-minded brilliance, goes the way of Enron. Notes:

  1. For reasons of confidentiality and propriety, I have had to change many details and deliberately leave the other details sketchy. Yet, the key message would not change if I had given these details.
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HOW SUPPLY CHAIN 3.0 CAN LEAD TO TANGIBLE BUSINESS BENEFITS (Part 4 of 6)

I hope by now you have grasped the business model in which Supply Chain 3.0 resides. Before we examine all the concrete benefits of Supply Chain 3.0, let us briefly differentiate it from its predecessors. Table 1 sets out to do that:

 

 

Table 1 – Supply Chain Metaphors

  Supply Chain 0.0 Supply Chain 1.0 Supply Chain 2.0 Supply Chain 3.0
Value Addition Uncertain Accretion Synergy Synchronicity
Mathematical Principle 2+2 ??? 2+2=4 2 & 2 = 5 2  & 2 is 22
Physical Metaphor Folk lore Mechanical (Newton) Quantum (Max Planck) Relativity (Einstein)
Cognitive Principle None Impulse Conscious Sub-conscious
Organisational Metaphor Brownian motion (Chaos) Chronometer Orchestra (feel the well-arranged and rehearsed music) Schools of fish (see the spontaneous music in action, changing every second)
Visual Metaphor Candle Torch Laser Sunlight
Key Co-operation Mechanism None Control (Forced) Co-ordinate (Labored) Co-create (Spontaneous)
Economic Metaphor Barter – primitive economy Free Markets – Invisible hand Managed Markets – Firm hand Networks – joined hands
Economic Principle Foragers Scarcity Prosperity Abundance
Key Actors Gangs (Tribes) Individuals Organisations Networks
EconomicGuru None Adam Smith J. M. Keynes Barry Nalebuff
Management Guru None Peter Drucker Alfred Chandler C.K. Prahalad

I must add here that this is yet a preliminary table; many of the concepts being presented here are still being explored. To the best of my knowledge they are articulated for the first time in The 5-STAR Business Network. I am leaving the full discussion of this table to future blogs because it will take a lot of time to explore the fundamental differences between each generation of supply chain and the triggers that launched the next generation.

Whether you are a small, mid-market or large corporation, whether the economic volatility is high or low, whether the economic growth environment is high or low – in almost all situations for every company, supply chain 3.0 provides outstanding benefits over and above its predecessors.

Why?

Because it helps leverage the power of business networks with external partners. Let me explain further.

Who says Elephants cannot dance – all you need is good music

Large businesses are notorious for moving too slowly and being less nimble than their smaller counterparts. Layers of management, volumes of policy and procedures, risk management protocols are all designed with good intent. However, over a period of time as the intention becomes blurred and the link between the purpose and edict becomes more and more tenuous. In other words, old companies just get old and sclerotic, and lose their suppleness.

Dozens of large companies are discovering that the best way of retaining nimbleness in face of above situation is to formulate tight-lose supply chain relationships with other, more nimble companies. This is not restricted to business process outsourcing arrangements, or Japanese style Kieretsu structures. Almost all companies try and keep their labour force numbers flexible by using some form of sub-contracting, for example. At a higher level of value added, collaboration between entities for research, new product development and customer solutions creation increases the nimbleness and responsiveness of old age corporations.

Small companies can have a much larger impact with supply chain 3.0

If the impression so far is that supply chain 3.0 is only for larger, more established companies, it could not be more wrong. In fact, supply chain 3.0 is even more useful for smaller companies who can project their strengths and best attributes on a far wider scale using their 5-STAR Business Networks.

Now Red Bull is a large company, but cast your mind back a few decades when it was a small start-up competing in the global beverages industry against much larger giants. Gaining traction in more than 100 markets in a matter of 2 decades against the formidable competition who took nearly 7 decades to do that was no small feat. It would have been next to impossible without due regard to a close network of business partners and service providers.

But Red Bull is not the only example of a smaller player running rings around their much larger competition by configuring their 5-STAR Business Network.

We have helped a number of our client corporations achieve similar results in industries as diverse as solar energy, retail, chemicals, heavy engineering, machine tools and FMCG. More pertinently, we have used the same concepts in our own business to help our clients create results far superior than our top-tier strategy consulting competitors could. Most clients are surprised when they come to our office when they see how small our core operations is – because based on our results and global reach, they expect our company to have a much larger regular payroll.

Find out the concrete benefits of Supply Chain 3.0 in the next blog entry of this series.

HOW SUPPLY CHAIN 3.0 CAN LEAD TO TANGIBLE BUSINESS BENEFITS (Part 5 of 6)

As you can see, supply chain 3.0 is for everyone, small and big companies. Now let me demonstrate the concrete benefits of having supply chain 3.0 and I promise these are not dull or irrelevant stories.

Supply Chain 3.0 helps leverage your business infrastructure

Over the past several decades, both the global economy as well as the business structures have evolved dramatically to such an extent that now most businesses have no recourse but to strive and create business networks using unique custom designed supply chain 3.0.

Why?

Because no company – not even a company as big as Boeing – has all the resources necessary to create next generation products in shortening product development cycle times.

Faced with competition from A380s and the next generation Airbus planes, Boeing set out to reconfigure a business network of infrastructure to develop, design and build the 787s in record time. Despite the usual development hiccups – trials and tribulations – this drive towards supply chain 3.0 saved tremendous infrastructure costs for Boeing, and created goodwill around the world.

Supply Chain 3.0 helps create resilient and responsive businesses

In my book The 5-STAR Business Network I quote the incident that when the Tsunami flooded the eastern coastal stretch of Japan in March 2011, the ensuing nuclear disaster combined with the devastation caused by the tsunami to disrupt businesses around the world. Japanese economy sits right in the middle of the global business network and it was natural for businesses as diverse as auto manufacturing, electronics, chemicals, petroleum products, computers, metals to experience the disruptive shock.

For example, the price of the Toyota Prius went up by nearly $2,400 due to rumours of shortages.  While it is natural for a variety of businesses to experience the disruption, it was remarkable to note that those businesses which had the most responsive and resilient supply chains were the ones to recover from this catastrophe the quickest.

Another stark example of the power of supply chain 3.0 is that of the fire which tipped the balance within an industry. Two stalwarts in the mobile phone industry in March 2000 were equally impacted by the same event – a lightening fire in the chip manufacturing plant of their common supplier, Philips, in New Mexico.

Both Nokia and Ericsson experienced the business disruption to an equal extent as a result. Fire damage to the stocks was extensive. More importantly, the manufacturing capacity was damaged and it was difficult to estimate the time for repairs. Nokia has invested months, if not years, in creating and perfecting a robust and responsive supply chain, while Ericsson’s supply chain was relatively a middle-of-the-line affair that worked well when things were good.

After the fire, Nokia was able to see the full impact of the chip shortage on its own business, as well as the entire industry with a lot more clarity than Ericsson, and even Philips. Moving quickly, it activated other parts of its supply chain to shore up supplies, to redesign some of the chips to manufacture them in other plants, and to take other pre-emptive steps. Ericsson let the situation evolve at its own pace and made decisions more reactively. The resulting gain in profitability and market share for Nokia, and the loss of these for Ericsson tipped the balance of the industry to an extent where within a few years Nokia pulled far ahead of the Ericsson which never caught up with its erstwhile equal rival.

Find out how Supply Chain 3.0 can improve your cash position, help you gain speed and smooth out volatility in the last blog entry of this series.

HOW SUPPLY CHAIN 3.0 CAN LEAD TO TANGIBLE BUSINESS BENEFITS (Part 2 of 6)

I have set the scene in the first entry of this blog series. Things are changing, moving, and old business models are not working anymore. That is why I proposed even a new organisational model in my book The 5-STAR Business Network from which some of the following excerpts are taken with modifications.

Business Model has changed and most people are yet to understand the profound change

It is a well-known aphorism in the circles of architecture that form follows function. In other words, the structure of a particular unit, in general, evolves to facilitate the functioning of that unit. Moreover, if the form does not match the function, the structure will change or the function changes over a period of time.

While conducting research, we examined the organisational structure of more than 50 companies; almost all of them looked variations of the generic structure given in the figure below:

business-hierarchy

The titles in the boxes, as well as placement of the boxes, vary quite a bit; however, most companies still agree this is the best way to look at how they are organised to serve their customers’ needs.

At the same time, most of these companies have evolved within the last 2 decades; their functioning has become almost entirely customer centric with their customers’ priorities driving most of the business workings.

In our work with corporations, I have frequently found that the supply chain structure frequently results in limiting the effectiveness of the organisation. The traditional structure of the organisation shown above frequently stifles customer responsiveness and innovation. In the modern outsourced-globalised world, a traditional structure with very strict hierarchies and internal walls between departments is a hindrance rather than an aid for achieving success in business.

In today’s hypercompetitive world of consumer electronics, Apple is a standout among peers as great as Sony, Samsung, Panasonic, Motorola, Nokia and Dell. With convergence, all of these companies are vying for their share of consumer wallets with increasingly similar looking products which do similar things. What did Apple do that its market value now nearly surpasses Microsoft’s? How did it manage to get over entrenched competitive advantage of companies such as Sony, Motorola or Nokia?

Your organisation chart is the wrong model for your business

Our work in global supply network strategies and supply network design has convinced us that a modern distributed organisation needs to look at redesigning its explicit structure to keep up with the realities of the modern world. The business world has changed tremendously in the last 20 years.

A typical supply chain now runs across multiple continents seamlessly, through boundaries of several organisations, to finally serve a customer with a unique product. To do so, organisations have created de facto structures, which are far different from the traditional structures that they have put in their organisation charts.

The purists might argue that this does not really matter if the organisations are already acting in accordance with a de facto structure – an argument which holds some merit. However, people who make up an organisation respond to the explicitly shown structure with much more enthusiasm and clarity that to a de facto or mutually understood structure.

I believe that organisations should formalise their de facto structures and use them to gain further competitive advantage. For this purpose, we have created the following model:

sales and marketingThe customer centric model shown in Figure 2 starts with customers at the apex of the organisation. Clearly, it is the customer’s need which the organisation is trying to serve and aligned to this customer is the sales team, which is in direct contact with the customer all the time.

The function of the sales team is to have intimate understanding of the customer needs, customers’ usage of its products and their demographics, psychographics and profile. Only then can an organisation create successful products, which will gain wider acceptance in its customer base.

An organisation can outsource almost everything it does, but it can never outsource its sales. Sales are a fundamentally, integral part of an organisation’s structure. Virtually everything else but sales, could be done outside the organisation. However, two other key functions which are equally important and support the sales teams and also customer phasing are marketing and research & development. Between them, these three – sales, marketing and research & development – form the top tier of the modern organisation’s structure. However, both research & development and marketing can be outsourced, so long as the company and its core team control the outsourced entities.

Forming the second tier is the foundation of the organisation – the supply chain, which incorporates procurement, production and logistics. They are the support base or the backbone of the organisation, which are frequently outsourced either to single provider or to a multitude of ‘best-of-breed’ providers around the world in such a way that the customers’ needs are met seamlessly without any visibility of where any of these activities are actually carried out. It is interesting to note that this customer centric model merely illustrates the actual structure that most modern organisations have evolved into.

What’s surprising is that most business schools and management theories are still persisting with outdated organisational models of 80s and 90s, which bear no resemblance to the actual way businesses are choosing to structure their organisations. Please read the next entry in the series to find out how models of supply chains have evolved.

HOW SUPPLY CHAIN 3.0 CAN LEAD TO TANGIBLE BUSINESS BENEFITS

In this series, I will address the second question raised at the start of the previous blog series – “What are the benefits of supply chain 3.0?” Before answering that question, let me go over the three type of responses I generally get when I explain to people that supply chain 3.0 is real.

Most of the McKinsey (or their clone) trained strategists ask me to show data to back up this assertion. On the other hand, more intuitive executives (mainly from sales and marketing background, as I observe) ask me to explain the benefits of supply chain 3.0. Finally, the third group – those who I call the transformational leaders ask a simple question – how can we use the power of supply chain 3.0 in effecting beneficial business transformations.

First a caveat – no benefit accrues to those who do not act. And, not just any random action will suffice (though, in most cases, any action is better than no action); you need action based on cohesive, strategic thinking. That is the reason for the word “can” in the title of this post – all benefits are just potential energy till converted into reality by your kinetic energy.

Of course, I have not yet talked about how supply chain 3.0 differs from its previous version – supply chain 2.0. While the full detail of that is a subject for a future blog post, it will be necessary for us to know that these are different, and that supply chain 3.0 is a step change above supply chain 2.0. So, we will briefly delve into various avatars of supply chains as we look at the benefits of supply chain 3.0.

To understand the potential benefits of supply chain 3.0, let us look at the current business context. The best way for me to get you thinking along the same line as me is show you the following slideshow with just 14 slides from UNDERCURRENT:

It will probably take you no more than 7 minutes to quickly peruse this material and I have no intention of taking credit for the original thinking by the makers of this slideshow. That is why I am neither paraphrasing it, nor taking from it – something I see happening with my material more and more, even in the erudite circles.

My personal takeaway message from the above slideshow is that something immense is happening across the world of business. Combination of globalisation, bandwidth, rising standards in the east and financial adjustments in the west are creating both opportunities and threats everywhere.

Recently, someone sent me the link to a cartoon by marketoonist.com, which I show below for comment. They quipped to me that retail business model is toast. I agreed, but asked in return “which model is safe”. Think deeply enough, especially in line of the material in the slideshow and you can see the same threat lurking everywhere in many different forms.

Retail business model is toast?

Retail business model is toast?

But the old cliché is right. Every threat does hide an opportunity. I believe this despite the fact that I do not know enough Chinese language to attest to the fact that the Chinese character for threat and opportunity is the same (unfortunately, I could not learn any Chinese through-out the translation of my book into that language).

There is a lot of talk about VUCA – Variability, Uncertainty, Complexity and Ambiguity – when strategists discuss the business environment today. It is a bit ironic that so many military terms get incorporated in the strategy parlance during the time of duress.

However, one thing is clear – that old organisational models are not adequate anymore. New challenges need new responses. In the next entry of this blog series, I will discuss about business models, how they have changed and the effects on supply chain.

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