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Organisation Design of Contemporary Supply Chains – The Elephant in the Room

John Gattorna & Deborah Ellis, Gattorna Alignment
23rd November 2020

John Gattorna & Deborah Ellis, Gattorna Alignment

In a world where the customer expectations are rising rapidly, where the customer is very demanding and particular, organizations need to re-invent their supply chain structures to ensure customer excellence. In this blog, Dr. John Gattorna, a supply chain thought leader and Deborah Ellis from Gattorna Alignment write about the new organizational structure for a changed world. Aligning with the customer, rather than with each other

Organization design is the elephant in the room in today’s supply chains; but few companies want to seriously address this issue head on. They think, wrongly, that the status quo can continue and is safer than making radical change.

We have become wedded to conventional organization designs that feature vertical functions and clear reporting lines. It’s more convenient and easier to manage that way. But times have changed. Today’s customers are not the same as those of yesteryear. They are empowered by social media, and they are becoming increasingly demanding. They are looking for responsiveness and understanding from their suppliers.

Conventional functional designs can no longer respond quickly enough or appropriately to customers of this ilk. Why? Because we are still managing our organizations in a vertical, hierarchical way, when customers are buying our products and services horizontally, in a cross-functional way. Which means that we start out at least 90 degrees out of phase with our customers, with very little chance of ever aligning with their expectations! But there is a way forward if there is the courage and leadership to do so.

To become truly customer-centric (rather than just talk about it), we must configure our organization to genuinely reflect the expectations of customers in our target market. And the only way to do this is to find out what those underlying expectations are through primary research and analyzing the available demand data. We call this ‘outside-in’ thinking.

But in addition, we need to have a cluster or group tightly focused on the outcomes and solutions needed by the main customer segments in the market.

In a customer-focused supply chain organization, we must still retain our functional specialisms such as procurement, manufacturing, logistics, sales and marketing. But in addition, we need to have a cluster or group tightly focused on the outcomes and solutions needed by the main customer segments in the market.

A customer-focused cluster would consist of staff seconded from each of the relevant functions into a multi-disciplinary team that mirrors the key behavioral/buying segments found in the external target market, usually 4 or 5 in number. The most common buying segments found across all product categories and geographies are: Collaborative; Transactional; Project; Dynamic; and Innovative Solutions.

Each supply chain team can be engineered to reflect a particular bias, the same biasas their matching customer segment in the external market. For example, the bias in the Collaborative SC team is one of relationships; in the Lean team it is cost, efficiency and reliability; in the Campaign (Project) team it is on-time, on-budget; in the Agile team it is absolute speed of response; and in the Fully Flexible team, it is delivering creative solutions at speed to overcome unexpected events and disruptions.

Conventional functional designs can no longer respond quickly enough or appropriately to customers of this ilk.

Both structures operate simultaneously and in synch. This is not the conventional matrix organization because both the vertical and horizontal structures each have their respective roles and direct reporting lines. The personnel in the supply chain teams are all seconded from functions and remain in their new role for at least two years, before returning to their previous roles. The four or five teams driving the horizontal flows of product across the organization report to a Chief Customer Supply Chain Officer (CCSCO), a new role – reflecting the customer as the ultimate recipient and judge of the SC operation. And given the significance that supply chain plays in most organizations reliant on physical flows, this position should report directly to the Chief Executive(CEO).

Some companies have already begun to experiment with this type of customer-focused configuration, with very positive results. It’s not that hard, and it doesn’t require any additional headcount. Both the vertical and horizontal configurations can be serviced by an underlying Shared Service organization consisting of IT, HR, and Finance functions.

All that is required to make this vital change is insightful leadership and the will power to get it done in the face of internal resistance! But the Covid-19 crisis has surely opened the gate for such new directions, especially those that improve alignment with an increasingly demanding customer base. ♦♦♦♦♦

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