Supply Chains at a Tipping Point

Article Four Ride the Supply Chain Train into the 4th Industrial Era

Patricia McLagan

Growing businesses have always faced a dilemma: how to seamlessly flow work from and to the customer while still managing the complexity of bigness. For Henry Ford, the answer was to limit customers’ choices: “Any customer can have a car painted any color that he wants so long as it’s black.” Obviously this kind of customer control would be a suicide plan for most businesses today. But the pressures of growth and scale do require special mechanisms to ensure the organization is aligned and operates effectively.  The traditional, and perhaps only possible solution in the past has been to use hierarchy, silos and rational management to manage complexity of any business with more than a few hundred people.

But digitalization and the growing maturity of supply chains as end-to-end operations make it possible to better match the organization’s form (it’s design) with its function (to add value by serving customers).  Organizations are becoming the flow they support. This alignment of form and function will define Industry 4.0 businesses, and supply chains are leading this fundamental rethink of business itself.  The Supply Chain Train is carrying businesses into the 4th Industrial Era.

Follow the Money

The business’ big digital investments and integrations are increasingly focused on the supply chain. Sales and operations planning, engineering, purchasing, manufacturing, inventory management, suppliers and contractors, logistics, and customer connections have always been directly in the customer-oriented flow. But these are now digitally integrated and together account for most of the capital and operational cost of doing business. 

Think about how all these functions in the end-to-end value stream operated and developed in the past.  I recall how innovative it was for Purchasing to commit to quality as well as cost, for Manufacturing to invest in microprocessors in products and processes within plants, how Finance drove inventory management toward just-in-time even at the cost of some downstream problems. I recall, as I’m sure you do, the relative independence of sales forecasts versus production plans, and the attempts to use matrix structure allegiances to manage the horizontal flow while retaining the traditional hierarchy.  These all helped develop functional capability and maturity. But the changes were often confined to their silos or specific organizational levels. Some of the inefficiencies and frictions associated with piecemeal vs. systemic change continue to exist today, but their costs are now more visible and troubling.

As it becomes more critical to manage the end-to-end flow holistically, the costs of the friction and waste created by hierarchies and silos increase and are more obvious. For example, there are uncalculated costs of fear of failure, reluctance to risk, over-supervision and autocratic management, dis-empowerment and dependency, inter-silo misunderstanding and conflict, “it’s not my job.”

This is not an argument to abolish hierarchy or functional allegiances.  Rather it’s time to redefine what hierarchical relationships and functional identities mean in a more digitally aligned and horizontally flowing business. Everybody has to step out of his or her silo and hierarchical level to prepare for and thrive in a continually changing workplace. They must think and act locally but see problems and options from the vantage point of the business, customers, sustainability, and more.  Digitalization provides the visibility and transparency for people to have this dual perspective. But this requires a big change in relationships, identities, and mindsets. Leaders and the workforce require training and support to function in this value-stream-focused business where they don’t just operate from a box on the organization chart. People need to evolve along with the new reality of a digitalized business.

Supply Chains Are the Business

Black Swan events can trigger T3 (transformational) change.[1]  But so can forces that stealthily build over time,  coming from the margins and growing inside the entities they ultimately replace.  Remember the goddess Athena in Article One[2] of this series.  She developed her powers while locked inside Zeus’ head., then became the protectress of a great city.  Like Athena, supply chains have been developing strength while “inside” businesses that are often loath to recognize their transformational power.

However, many supply chains – even though they are the main function of the business and account for over 80% of its costs – still have less strategic clout than other parts of the business. “Supply chain” still too often connotes just “logistics.” In addition, few top supply chain leaders have an ongoing direct voice in the C-Suite. This marginalization is typical when mainstream forces (in this case, the traditional vertical business) meet what is emerging (in this case, the supply chain).

It’s vital, and probably inevitable, that supply chains and their horizontal flows become the mental and operational model of the business. In fact, in many ways supply chains ARE the business. But, when asked to “draw your organization,” most people still draw the pyramid organization chart (notice that customers are missing), rather than the end-to-end value stream including its customers and extended networks.  

More than Change IN the Supply Chain

Supply chains – more aptly, “value streams” or “value networks” —  are, and have always been, the function of the business.  Now it’s time for it to become the form of the business.

What will it take to lead this important form-to-function shift in the business? Supply chain leaders are the only ones in a position to guide the dramatic socio-technical metamorphoses going on in the value streams you lead, but also to be a transformational change agent for the business as a whole. It’s up to you to help both your supply chain and your business ride the Supply Chain Train into the 4th Industrial Era.

Your change agent role is the focus of the final article in this series.

[1] See Article Three in this series: “Can You Bend the Organization to Your Will?”

[2] See Article Two in this series: “Fifty Years Preparing for Cultural Breakthrough”

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