If you’re making changes to your supply chain network…

Events of the past few years have made supply chain leaders well aware of the impact disruption can have on their physical networks, often resulting in frequent and rapid changes to manufacturing locations, the supplier base and warehousing and transport networks. While these changes are based on an examination of cost, margin and risk, an aspect that requires more than a cold calculation is the potential need for organizational design changes to align with these physical network changes.

Many supply chain leaders today are grappling with decisions to change their organization’s structure along with the network, to relocate roles to where physical work is done to be more customer-centric or
to co-locate roles and give them global scope to maximize scalability and efficiency.

To help assess the need for organizational change as a result of network redesign, supply chain leaders should consider four layers of capability in their supply chain organization structure. The layers do not represent levels of management or hierarchy. Instead, they represent capabilities, roles and teams that compose a mature and effective supply chain organization. The four layers are:

Govern: Roles and teams provide the strategy, objectives, desired outcomes, metrics and incentives that guide decision making in the adapt, orchestrate and execute layers.

Adapt: Roles and teams provide the best practices, standards, development and tools necessary for the execute and orchestrate layers to perform their functions. The adapt layer works with those layers to devise the best practices, while the governing layer sets the priorities and allocates resources.

Orchestrate: Roles and teams provide process linkages and cross-functional decision-making forums to align trade-offs as employees carry out their functions. They work with the adapt layer to design new standard processes, and then often own the operation and maintenance of those processes.

Execute: Roles and teams deliver the best service at the lowest cost to internal and external customers within the governing framework (e.g., quality, finance, risk, ethics, strategy, etc.) of the supply chain. They also provide input into cross-functional decision making occurring in the orchestrate layer and the best practices designed in the adapt layer.

Evaluating the operational layers

Wondering where to begin? Let’s start with the operational layers — Execute and Orchestrate. These are the roles and teams that coordinate and complete operational transactions to get products made and delivered.

The obvious answer here is that roles working with physical product — e.g., production, packaging, warehouse and transport roles — need to be on site whatever way the network changes. Factories, warehouses and transportation depots need to be staffed accordingly by your organization or outsourced providers.
However, what about operational roles that do not directly engage with the physical product — e.g., planners, buyers and customer-service representatives. Should they also be on site, in country, or can they be located in regional or global centers?

To answer this, consider whether local execution is necessary to ensure the right speed of decision making and action. Another factor to weight is compliance, regulatory or cultural reasons that may make it beneficial to locate the role in a specific geography. Lastly, contemplate if the benefits of local execution outweigh the loss of scale benefits that could be gained from co-location at a global or regional level.

After considering, if the answer to any of these questions is yes, then new nodes in the physical network will require operational staffing in, or close to, those locations. If not, consider locating these roles and teams in global or regional centers which achieve scale benefits — greater ability to maximize utilization of a highly capable pool of resources; lower costs of headcount, IT and real estate.

Consider the Govern and Adapt layers

Roles and teams in the Govern and Adapt layers of capability make decisions about how the future supply chain will operate and how to get to that state. The Govern layer consists of heads of supply chain roles, heads of function and members of governing councils or committees. The Adapt layer is populated by roles such as process owners or innovation leads, grouped into teams such as Centers of Excellence and Business Process Improvement.

These roles are often part of centralized organization structures, located in global or regional offices and, increasingly, in virtual and remote settings. So, it is tempting to consider them immune to network changes — surely this kind of work can be done anywhere in the world, leveraging all the advantages of collaborative technology?

This is not always the case. I have engaged with organizations thinking very carefully about where to locate these roles and teams. Here are a few reasons why supply chain network changes alter the location and distribution of Govern and Adapt roles:

• Regionalization of the organization and its ecosystems changes the balance of global versus regional Govern and Adapt roles in favor of regional structures.

• New strategic partners and stakeholders emerge and proximity to them becomes an enabler of innovation and development (e.g., university partnerships for technology, NGOs for sustainability).

• An organization’s increased presence in a location opens new opportunities regarding the availability, quality and retention of talent.

• Developing resilience and responsiveness to disruption entails a wider spread of decision-making power through the supply chain organization, resulting in Govern-focused roles in new locations.

When making physical changes to the supply chain network, the impact on the supply chain organization’s design should not be overlooked. Supply chain leaders need to know which roles and teams are impacted, determine if organization redesign is necessary and, if so, act to optimize their organizational structures.

Alan O’Keeffe is a senior director analyst covering global supply chain organization design, governance, change management, and organization behavior at Gartner Supply Chain Practice. Using in-depth cross-industry research and insight into trends he provides advice to supply chain leaders on how best to engage people and organizations to address the growing complexity of 21st century supply chains.

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