Effective SCM is an Essential Organizational Requirement

Jim Tompkins, CEO, Tompkins International
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Jim Tompkins, CEO, Tompkins International

The Supply Chain Management (SCM) continues to expand in its understanding, its impacts on stakeholder value, and its role in the business and operational strategies of each company. However, the question of the most effective organizational design has risen to the executive suite along with the awareness of its growing influence. Surveys and benchmarks continue to reflect the dissatisfactions created by weak or inappropriate SCM organizational models. One thing is clear, the search for the “perfect model” is illusive. Just as, no two companies are the same regardless of their similarities within an industry, or even when producing or selling similar product lines, their strategies, people, processes, technologies, and cultures, are all different. Therefore, the organizational models will differ as well. What is also true is how a company goes about redesigning its SCM organization determines the company’s success. The primary factors (or levers) have been learned, for the most part. The challenges surrounding SCM organizations stems from the complexities inherent to SCM, as well as how it is viewed by the senior leadership of the corporation or company.

“The initial task for any company is to understand what today’s supply chain encompasses”

Thus, we all too often find not only inadequate SCM models, but also “starts and stops” when these are addressed. These are most often caused by market disruptions for example, the eCommerce revolution, with its new online business models that are disrupting markets and filling needs, and its related “multi-channel” requirements for serving customers. The new aspirations for getting companies to deal effectively with omni-channels are causing confusion, complexities, and mistakes. Many surveys show that 75 percent of the companies that should be omni-channel are struggling with the right SCM organizations to enable their strategies. As I have pointed out in earlier writings what omni-channel really is, remains misunderstood.  There are several questions to be asked and answered by each and every company to solve this issue.

There are no “perfect SCM models”. We do know the factors (or levers) to be applied and the best process (the right way) for attacking the strategic question, “How should we reorganize our SCM organization to best enable its effectiveness for the success of our enterprise, and especially for enabling our omni-channel strategies?”

Why is Ecommerce and Omni-channel challenging the Traditional Supply Chain?

The initial task for any company is to understand what today’s supply chain encompasses. This simple Mega Process Model should be used.

The definition of SCM is the management of the full “end-to-end” processes that guide and execute the transformation of raw materials through the chain of events that lead to finished product sales. This “cash-to-cash” cycle reflects all that must happen from source (suppliers’ suppliers) to consumption (customers’ customers).

This involves many processes, many activities, and many businesses. Few companies have managed to create SCM organizations that have all the authorities to plan, manage, and control all the factors. The SCM organization should have the responsibility for the company to make sure the entire cycle functions as an enabler to the business strategy, and does it with efficiency, speed, effectiveness, and quality, while minimizing all the risks.

Over the 20-year time period for companies to learn these principles, we have seen various SCM models evolve. Over 50 percent of the larger corporations, for example, now have a Chief Supply Chain Officer (CSCO), if not in title, at least in role. While only a few have the full SCM authority, the movement toward this vision has continued to progress. This evolution has been rapidly disrupted, however, by the digital revolution, or better known as eCommerce, and its need for omnichannel operations.

It should first be understood that getting to an “Omni-channel Champion” requires more than SCM organizational redesigns. Planning, merchandising, marketing, store operations, and information technology are all impacted. Organizational designs follow strategy, and without an effective SCM organization, the other needs will not be met, certainly not in the near-term, which is necessary today.

Starting with the Mega Process Model is necessary, but not sufficient. The Mega Process Model remains the same, but the variations and dynamics change significantly.

These changes create new challenges for all companies, retailers, wholesalers, consumer products, distributors, and even those that are B2B companies. The organizational model affects cost, time, and quality in many ways. Organizational redesigns to date, however, have largely been centered on alternatives such as:

a. Positioning the dot.com business in a separate department, group, or unit 
b. Creating a dot.com team to work across the operations
c. Creating separate eCommerce organizations for each channel
d. Establishing an eCommerce planning position for inventory purposes
e. Assigning the eCommerce leader to marketing or merchandising
f. Challenging operations leaders to factor in online ordering
g. Challenging supply chain leaders to integrate online ordering and e-fulfillment with their current functions
h. Challenging planners to forecast online sales for S&OP or other reasons

None of these alternatives have solved the problem. At best, they have helped with obtaining “Multichannel Operations”. While some may have solved the “single view of all inventories”, “pick and ship from stores”, or even improvements in stocking policies, none of the organizational models have caused, created, or solved new omni-channel strategies, new business processes, or new talent gaps; nor have they enabled speed, cost, and quality to reach acceptable levels. Moreover, none have influenced effectively new omni-channel strategies, new operations capabilities, or minimizing channel conflicts.

Thus, all the initiatives that create “Omni-channel Champions” are left to incremental experimentation, over-analysis, unmet gaps, or negative financial impacts and stakeholder value degradation. Even those few companies that have taken on SCM centralization, for example, have either changed their plans or become stuck in what to centralize vs. decentralize. Consequently, we see way too many companies in states of confusion about what to do organizationally for omni-channel, for SCM itself, or for needs in new processes, new systems, or new performance metrics.

While mostly all companies are thinking about omni-channel, and are in various stages of “trial and error” with their organizational changes to best facilitate it, the challenges and complexities are proving to be significant barriers to getting to the right solutions. Because SCM is so critical for achieving the four views attributes, we consider this organizational requirement essential above all the others.

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