Should you build an internal supply chain network design competency?

Should you build an internal supply chain network design SCND) competency?

Ted SchaeferI recently read an e-book published last month by Llamasoft, a large supply chain network design software provider, suggesting that companies build their own internal supply chain design (SCND) competency (using the authors’ software, of course).  Without a doubt SCND is critical to a well-functioning cost-efficient supply chain and is an integral part of the ongoing supply chain management process.

The thing that really caught my eye was the suggestion that a company simply “create an internal SCND competence.” Having managed a Supply Chain Design group within a Fortune 100 company and now serving as an external SCND resource for major companies around the world, I speak from experience when I say that it is very rare for a company to develop and sustain the necessary in-house competency to fully utilize the SCND process without outside expertise.  In fact, most companies fail when they embark on this journey.

Who do you need?

First, you need the right people. These are people with great analytical and people skills.  However, unsaid in the e-book, SCND project leaders need to have enough “weight” in the organization to convince people to be open to new ways of doing things.  Thus, they need to need to understand the entire business, particularly the financial flows, and be seasoned and credible enough within the organization to

  • challenge the data or the assumptions because “they just don’t add up”
  • know when 80:20 is good enough, and when it is not
  • build enough trust in the numbers and the process among the varied stakeholders to get buy-in on big decisions.
  • If you fail here, your project/process fails.

Merely assembling “a team of bright, talented analysts dedicated to supply chain design,” will not cut it.  The leader of this group, and each significant project, needs to be at a senior manager or director level to drive the changes that will be needed to reap the benefits of the SCND process.

Unfortunately, I have seen numerous organizations hire a junior analyst as their SCND process leader.  For example, one analyst at a large distribution company told me that he had been using the authors’ modeling software for several years without a single successful implementation.  Although the analyst could gather data and was proficient with the modeling software, he didn’t fully understand the business financials and didn’t have the experience to build credibility with his stakeholders.  It’s no surprise that the analyst and his management were frustrated that they did not achieve the results they were promised when they purchased the software.

How do you organize them?

Corporate Staff Group or COE

The second issue that often prevents success is organizational structure. A number of companies opt for a corporate staff group to house their SCND competency.  This structure offers career growth and enough projects to challenge the types of leaders and analysists that do this work well. However, as can be the case in many staff organizations (think Corporate IT), these groups are often slow to execute projects and burdened with overhead cost. Businesses do not want to inherit an ongoing cost allocation if they use the central services for a project and the staff groups are not “part of the business” and often have a standard process that smacks of a “Not invented here syndrome”. To underline this point, a good percentage of our work over the past 20+ years in the SCND arena has been with companies that have their own SCND capability.  We are called by business unit SC personnel who wanted it faster and cheaper than what they could get internally.

Business-specific group

An alternative organization is to hire business-specific resources.  This structure provides great alignment with the business and can be an agile, quick, “part of the team”. However, career path is an issue.  Remember, we are talking about seasoned and respected leaders.  Once they have a few projects under their belts, these men and women have an excellent understanding of the overall business and are highly sought after by other parts of the business. Unless the business can support a full complement of SCND expertise from master to beginner, the competency can and will erode. For a large multi-national company with a concentrated focus on only one or two supply chains or for a large business unit within such an enterprise that controls its own supply chain resources, I think building a deep SCND competency can be a good fit.  However, for most companies this approach sounds a lot better that it actually works.

Some recommended choices

So what would I suggest? SCND is a critical and ongoing process for a well-run supply chain, so you need to find a way to build it into your business.  Unless you’re going to hire an experienced SCND leader at the outset, you will need to bring in some outside expertise to help you analyze and optimize your existing supply chain and develop a supply chain network strategy for the future.  There are a number of experienced consultants that can provide this service.

Once you have completed your first supply chain analysis and have a validated and trusted model of your supply chain you have a few choices.

  1. Building an independently capable group, taking note of what I’ve written above
  2. Partnering with a 3rd party expert who can become a “flex resource” that provides you the expertise when and only when you need it
  3. Building a hybrid approach where you have internal resources to maintain and run existing models, but reach out for help when a new model or a major change to an existing model is needed.

As with any organizational design, your decision should be based on company culture, speed, effectiveness at delivering results and the total cost of the internal and external resources and the software/maintenance they need.  The best fit for most companies is option 2 or 3.

People, then Process, then Technology

Finally, the e-book correctly states that technology, by itself, is not the answer.  The fact of the matter is that the software selection is the least important part of a successful network design project or process. The authors outlined an approach that linked strategy, technology, people and process.  I agree with the essential elements of the process but found it Interesting that they suggested that technology comes right after strategy. I guess that makes sense if you’re selling software. However, my experience suggests that it’s people, process (including a strategy) and technology – in that order.

Strategic Network Analysis Planning (SNAP) Process Flow

About Ted Schaefer

Ted Schaefer is a practice leader for infrastructure planning, supply chain planning, and green optimization with more than 30 years of experience in the chemical industry.

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