CAMELOT management Consultants Study Business Transformation & Organisation Chemicals & Petrochemicals Pharmaceuticals & Life Sciences Consumer Goods Strategy & Business Model Innovation Business Transformation & Organisation Performance & Growth Supply Chain Management Operational Excellence & Lean Manufacturing Sourcing & Procurement Logistics & Distribution Marketing & Sales Strategic Information Management Partner for IT Applications & Solutions Supply Chain Management Organisation Challenges & performance drivers for supply chain / operations organisations Study findings
Study Supply Chain Management Organisation Business Transformation & Organisation Publisher Dr. Josef Packowski, Managing Partner, Camelot Management Consultants AG Authors Julian Amey, Principal Fellow, WMG, University of Warwick Michael Jarosch, Partner, Camelot Management Consultants AG Project team at Camelot Management Consultants AG: Matthias Brauch, Dr. Christian Fettweiss-Schulten, Dr. David Francas, Thomas Geyer, Libor Kotlik, Dr. Sven Mandewirth, Dr. Josef Packowski, Miriam Scharmach June 2012 ISBN 978-3-9815328-0-7 2
Study Supply Chain Management Organisation Preamble End-to-end management of the supply chain remains a developing concept for many process industry companies. Meanwhile, the development of information technology applications for supply chain management in recent years has enabled dramatic improvements by providing greater visibility of end-to-end supply chain performance and integrated planning. This in itself creates the opportunity and need to organise supply chain management differently from the past. Furthermore the trends in company strategy towards globalisation and growth in emerging markets require adapted supply chain management operating models. Continuing high numbers of Mergers & Acquisitions lead to significant organisational integration with the immediate question of how to develop the appropriate supply chain management organisation. These major trends and our daily work show us that (re-)designing and evolving the supply chain management organisation is a constant duty of top management in order to secure most effectively and efficiently supply reliability and agility in the future. However we have been unable to identify sufficient relevant studies of which companies are structuring and should evolve their supply chain management organisation. This gave us the stimulus to embark on this study which reflects the insights from the nearly 50 interviews with participants from three process industry sectors and resulted in this document. We would like to thank all the participants of the study for their insights and time provided during the intensive interviews. Dr. Josef Packowski Managing Partner Camelot Management Consultants AG Julian Amey Principal Fellow WMG, University of Warwick Michael Jarosch Partner Camelot Management Consultants AG Mannheim / Warwick, June 2012 3
Table of Content Preamble 3 Executive Summary 4 1 Scope and objectives 1.1 Structure of the document 1.2 Purpose 1.3 Methodology 1.4 What is supply chain management? 1.5 What is an organisation? 7 7 7 8 8 8 2 Influencing factors and success factors for the supply chain management organisation 2.1 Influencing factors on the supply chain management organisation 2.1.1 Company strategy and operating model 2.1.2 Supply chain set-up and configuration 2.1.3 People, culture and behaviour 2.2 Success factors Making the SCM organisation work 9 9 9 16 18 21 3 Supply chain organisation models 3.1 Organisational positioning of supply chain management 3.2 The SCM span of control 3.3 Consolidation of observed SCM organisation models 31 31 35 37 4 A framework for the evolution of the supply chain management organisation 4.1 Purpose of the reference framework 4.2 Dimensions and structure of the reference framework 4.2.1 Dimension market and competitive strategy 4.2.2 Dimension supply chain set-up 4.2.3 Dimension culture and behaviour 4.2.4 Dimension supply chain management organisation 4.2.5 Combining the four dimensions in a holistic reference framework 4.3 Classification of SCM organisation models using the reference framework 4.3.1 Decentralised Local/Regional Independence SCM model 4.3.2 Centralised Hub & Spoke Dependence SCM model 4.3.3 Coordinated Network Interdependence SCM model 4.4 What does the supply chain management organisation look like in process industries 4.4.1 Decentralised Local/Regional Independence SCM model 4.4.2 Centralised Hub & Spoke Dependence SCM model 4.4.3 Coordinated Network Interdependence SCM model 4.5 SCM organisation development using the reference framework 4.5.1 Focus on balanced strategies for SCM organisations 4.5.2 How to make balanced transitions between SCM organisation models 4.5.3 Avoiding imbalanced SCM organisation models 39 39 40 40 41 42 43 44 46 46 48 50 51 51 52 52 53 53 54 55 5
Study Supply Chain Management Organisation 5 Developing and designing the right supply chain organisation 5.1 Aligning the future organisational model with company strategy and objectives 5.1.1 Supply chain performance objectives and organisational models 5.1.2 Considering future challenges and trends 5.1.3 Special focus on emerging markets and external sourcing 5.1.4 Summarizing the impact of selected key strategic challenges on organisational design and models 5.2 Dedicating the supply chain management accountabilities 5.2.1 Defining the span of control 5.2.2 Aligning accountabilities assignment with the SCM model sc planning deep dive 5.3 Defining improvements 5.4 Designing collaboration 5.5 Harmonizing roles in the supply chain organisation 5.6 Sizing of the supply chain management organisation 5.7 Aligning future performance measurement and rewards with roles 5.8 Assigning the right people and developing necessary capabilities 58 59 59 60 62 64 65 65 66 75 75 76 77 79 80 6 Approach to implementation 6.1 Key steps for organisation design and implementation 6.2 Pre-requisites and critical success factors 6.3 Potential pitfalls 81 81 82 82 7 Conclusion and outlook 84 Appendix Appendix 1: Study participants Appendix 2: Industry specific supply chain set-up Pharmaceuticals and Biotechnology Industry Chemicals Industry Consumer Goods Industry Appendix 3: Assigned roles/accountabilities Appendix 4: SCM accountabilities by industry 86 86 87 87 88 89 91 92 Glossary/Index 95 Overview study questionnaire 97 Table of figures 98 6
1 Scope and objectives 1.1 Structure of the document We have created a flow in the document that leads from influencing factors and success factors for the SCM organisation based on the study insights from observed organisation models to a holistic SCM organisation reference framework followed by key elements for organisational design and finally an approach to organisational design and implementation. 1 Scope and objectives Document Chapter Topics Purpose of the study and key definitions Figure 1: Content flow of the document 2 Influencing factors and success factors for the supply chain management organisation Dimensions that influence SCM organisation design reflected with study insights Making the SCM organisation work Success factors reflected with study insights 3 Supply chain organisation models Organisational positioning/reporting of SCM, high level structures, accountabilities 4 A framework for the evolution of the supply chain management organisation Holistic context of SCM organisation models and their evolution 5 Developing and designing the right supply chain organisation Design parameters and link to SCM organisation models 6 Approach to implementation Design and Implementation steps and learnings 7 Conclusion and outlook Key Messages/Top 10 take-away messages 1.2 Purpose There is great consistency in the aspiration of companies in the process industries: all are striving to improve supply chain performance. However, whilst there are similarities in some of the approaches adopted to achieve improvements, there is little uniformity in how different organisations have structured their supply chain organisations to oversee and drive their supply chains. This study has been designed to gain insight into how different process industry companies across the sectors of Pharmaceuticals, Chemicals and Consumer Goods have structured their supply chain organisations. It examines how each has shaped their organisation to manage their end-to-end supply chain and respond to the challenges of globalisation and growth in emerging markets. It explores the context within which each organisation operates and highlights key performance objectives and the improve- 7
Study Supply Chain Management Organisation ment approaches that have been adopted. The study identifies the key drivers behind the choice of different models and the path that companies have typically followed in developing their supply chain organisations. It highlights the challenges ahead, the capabilities required to support future success and the change management required in order to develop and transition an organisation. 1.3 Methodology Supply chain leaders from a wide range of companies in the Pharmaceutical, Chemical and Consumer Goods sectors were interviewed using a structured questionnaire. 47 companies participated in the study. The results have been analysed both quantitatively and qualitatively. Collection of hard quantitative data does not easily capture the qualitative aspects of an organisation. Hence the study was conducted by interviews with participants, the vast majority face-to-face, rather than by a simple online survey. The report endeavours to convey the spirit and feel of the organisations that is hard to express using a more basic quantitative approach. Necessarily this report provides a high level summary of the findings and includes results and responses that have been filtered and anonymised. 1.4 What is supply chain management? For the purposes of this study, Supply Chain Management (SCM) is taken to comprise all the activities required to deliver value to a customer in the form of a product or service. SCM is the management across both the internal organisation and the network of external organisations (suppliers, contract manufacturers, distributors) of those necessary activities including the flow of materials, the management of supply chain information, and the planning and coordination of resources. 1.5 What is an organisation? In this study, an organisation is taken to mean a grouping of people around a particular purpose. It should have defined members and reporting structure. It should have a clear role and responsibilities with defined decision rights (i.e. what decisions can it and its members make) and governance processes. An organisation though is more than a set of organograms and documented procedures: it is also about how it interacts with its customers and stakeholders, the rest of the company (its internal interfaces) and externally. It will have a set of values and behaviours, frequently similar to those of the company but may also be unique and set by the nature of the organisation and the organisation s leaders. Supply chain management organisations tend to be quite complex because of the breadth of the supply chain role and the large number of interfaces involved. They may also need to have a wide geographical and cultural footprint, meaning that they have to embrace diversity. Differing perspectives, cultures and requirements between companies mean that there can be significant variation in role, accountabilities and other dimensions between different SCM organisations. 8
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4.5 SCM organisation development using the reference framework The reference framework developed here goes beyond mapping a SCM organisation along the identified key dimensions. Using the reference framework, we will show why balanced design strategies should be favoured and describe how a supply chain organisation should be developed in order to achieve an optimal fit between all relevant dimensions, namely market and competitive strategy, supply chain set-up, culture and behaviour, and the SCM organisation itself. 4.5.1 Focus on balanced strategies for SCM organisations If we recall the positioning of the three predominant models in process industries, we saw that each model exhibits a balanced design with regard to the four dimensions of the reference framework (see circles A, B, C in Figure 38). In general, one can observe that effective strategies are likely to be found on the same circle and thus are balanced across each of the dimensions. The following example will illustrate why a balanced design is more effective and sustainable for the organisation of a supply chain. 1 Competitive strategy Differentiated Cost leader Market / Competitive strategy Product portfolio Standardised High variety SC Set-up 2 Figure 38: Strategic fit versus misfit in organisational design Market coverage Full Partial Local market intimacy A B Global commodities for mass market C Local independence Globally integrated Network Footprint Potential fit Decentralised and independent local units to manage local market (balanced design) Configuration Decentral Central Decentralised independent Subcultures Unitary culture Differentiation Potential misfit Decentralised and independent local units to manage global commodities (imbalanced design) 4 SCM organisation Culture / Behaviour 3 Loose Coordination Tight Authoritative Participative Leadership style 53
Study Supply Chain Management Organisation As shown in Figure 38, a company strategy that builds for example on local market intimacy and customised products might be supported well by a decentralised SCM organisation with strong local independence (in this case, both dimensions have a strong local focus). In contrast, the same SCM organisation model might be not sufficient to deliver global commodities in a cost-efficient manner. In the latter case, we have a potential misfit between the SCM organisation and the market and competitive strategy of a company as a globally oriented company strategy cannot be effectively supported by a locally oriented organisation. Companies should favour a balanced model for their SCM organisation 4.5.2 How to make balanced transitions between SCM organisation models As shown in Figure 39 below, the transition between models or states can have different directions. In all cases, however, an ideal transition should be balanced, and move an organisation from one circle to another with regard to the four dimensions of the reference framework. Figure 39: Balanced transition between the three organisation models Market coverage Configuration Partial Full Central Decentral 1 Competitive strategy Differentiated Cost Leader Market / Competitive Strategy Customised products for local market Hybrid market / Competitive strategy Global commodities for mass market Decentralised independent Hub & Spoke dependency Integrated SCM network I A B C III II Product portfolio Standardised High variety SC Set-up Local independence with customisation Segmentation of assets and SCs Integrated e2e network Ethnocentric culture Geocentric culture Polycentric culture 2 Local independence Globally integrated Network footprint Subcultures Unitary culture Differentiation I II III A C C B A B Decentralised Local/Regional Independence SCM model Centralised Hub & Spoke Dependence SCM model Centralised Hub & Spoke Dependence SCM model Coordinated Network Interdependence SCM model Decentralised Local/Regional Independence SCM model Coordinated Network Interdependence SCM model 4 SCM organisation Culture / Behaviour 3 Loose Coordination Tight Authoritative Participative Leadership style 54
A move in from the Decentralised Local/Regional model to the Centralised Hub & Spoke model (I) is an often recognized evolution associated with growth of the company to a global coverage of markets with stronger standardisation of the product range, more complex and integrated supply chains and the need for managing the growing complexity through more standardised processes and end-to-end planning. Moving to a Centralised Hub & Spoke model from Decentralised Local/Regional model provides the necessary central leadership and governance required in the transition. We are very sceptical that a move from the Decentralised Local/Regional Independence to a Coordinated Network Interdependence model (III) can overcome persistence of local ways of working and local/ regional silo optimisation of the supply chain. A move out from the Centralised Hub & Spoke Dependence model to the Coordinated Network Interdependence model (II) has been observed in situations where growth in emerging markets requires a substantial differentiation in market supply or a strategy shift to a more agile product supply requiring a more regionalized supply network footprint and better customer responsiveness through closer collaboration between SCM and local/regional marketing & sales. Moving out to the Coordinated Network Interdependence model from a mature Centralised Hub & Spoke Dependence model provides the benefits of a harmonised SCM management approach as well as standardised processes, roles and tools. Consistent governance by a central SCM function should maintain harmonisation and standardisation and provide sustainability of these benefits. As the framework describes, each of the supply chain organisation models or states has very different characteristics and requirements in terms of strategy, portfolio, culture and behaviours. In order to transition between organisation models, each of these characteristics needs also to change and be consistent with the desired future state model. In any case, one should be aware that an ideal transition strategy moves between balanced designs. 4.5.3 Avoiding imbalanced SCM organisation models In addition, the study revealed that companies rely on SCM organisations that can be classified as mixture, or hybrids, of the three introduced organisation models. In this paragraph we provide two examples of such an imbalanced set-up and highlight the associated risks and downsides. Example 1 Imbalanced transition away from Decentralised Local / Regional Independence model The blue dotted line in Figure 40 represents where the company is coming from with regard to company strategy and SCM organisation. All elements (quadrants) of the historical set-up have been balanced in the same Decentralised Local/Regional Independence model. The solid line below describes the situation where the market strategy now has global coverage with a hybrid strategy while the supply chain footprint and set-up still is very much local and not integrated. Supply chain management recognizes the need for more central governance and processes while the predominant culture of the organisation is historically polycentric. As observed in some cases in our study the centralisation move of supply chain 55
Study Supply Chain Management Organisation management encounters severe difficulties in process and role harmonisation but more importantly in realizing an effective end-to-end supply planning and inventory optimisation while meeting market needs and service levels to secure supply reliability. The imminent risk is that product supply will still be managed locally behind the scenes whilst the central supply chain management function gets decoupled from operational planning and execution. Figure 40: Imbalanced transition away from Decentralised Local/ Regional Independence model Market coverage Partial Full 1 Competitive strategy Differentiated Cost leader Market / Competitive strategy Customised products for local market Hybrid market / Competitive strategy Global commodities for mass market Productportfolio Standardised High variety SC Set-up Local independence with customisation Segmentation of assets and SCs Integrated e2e network 2 Local independence Globally integrated Network footprint Configuration Central Decentral Hub & Spoke dependency Integrated SCM network Decentralised independent Ethnocentric culture Geocentric culture Polycentric culture Subcultures Unitary culture Differentiation 4 SCM organisation Culture / Behaviour 3 Loose Coordination Tight Authoritative Participative Leadership style 56
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Your contact for further information: Camelot Management Consultants AG Michael Jarosch Phone +49 621 86298-0 mja@camelot-mc.com The University of Warwick Coventry CV4 7AL United Kingdom www2.warwick.ac.uk Camelot Management Consultants AG Theodor-Heuss-Anlage 12 68165 Mannheim Germany www.camelot-mc.com