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CHAPTER 3 Core Discipline 3: Design Your Organization for Performance
beyond functional areas such as manufacturing and logistics to include managing suppliers and filling customer orders. We call this the transitional supply chain organization. In most transitional organizations, order management reports to the sales or sales operations function, not to the vice president of operations (see Figure 3-4). The term supply chain didn t come into vogue until the middle to late 1990s. At that time, we began to see the emergence of positions such as supply chain manager or vice president of supply chain (see Figure 3-5).
F I G U R E 3 4
Transitional supply chain organization.
General Manager
Finance & Administration
Marketing & Sales Order Management
Operations Logistics Supply Management Purchasing Manufacturing Order Fulfillment
F I G U R E 3 5
Partially integrated supply chain organization.
General Manager
Finance & Administration
Marketing & Sales
Purchasing
Supply Chain Manager
Manufacturing
Supply Management Order Management Order Fulfillment
Strategic Supply Chain Management
This period also marked the beginning of the now-widespread philosophy of the supply chain as an end-to-end process.
What s in a Name
The actual titles used within an organization are far less important than the associated roles, responsibilities, and span of control. Although we re using titles such as operations vice president and vice president of supply chain, your company may choose any title you deem appropriate depending on the size of the organization, the existing hierarchy, and any policies related to the assignment of job titles. We started this chapter with a discussion of the integrated model, in which the supply chain organization is a separate function or entity. In this model, a supply chain management group is responsible for crossfunctional operational objectives, such as inventory days of supply, orderfulfillment lead time, or customer on-time delivery. In the integrated model, the supply chain manager has full control over the resources needed to execute the supply chain strategy (see Figure 3-6). At first glance, the transitional and integrated models may look very similar, but the difference is in much more than rearranging a few boxes on the organization chart or renaming functions. The concept of a holistic supply chain organization as depicted in the integrated model is relatively new.
F I G U R E 3 6
Integrated supply chain organization.
General Manager Finance & Administration
Marketing & Sales
Supply Chain Manager Supplier Management Purchasing Order Management Order Fulfillment Manufacturing
CHAPTER 3 Core Discipline 3: Design Your Organization for Performance
GUIDING PRINCIPLES FOR ORGANIZATIONAL DESIGN
There are many ways to structure an integrated organization, and hundreds of publications on organizational behavior, human resources management, and organizational change management try to offer guidance. But there is no off-the-shelf blueprint for designing an effective supply chain organization. And to compound the difficulty, there is likely to be limited tolerance for an ineffective design because the supply chain runs at the core of the business s ability to generate daily revenues. The decision to set up an integrated supply chain organization is only the first step of many, but it is a strategically important one with profound consequences. As you plan, design, develop, and implement your new organization, keep in mind these four guiding principles:
Form should follow function that is, organization should mirror process. For every process, assign an accountable function or individual. Know, grow, and keep your core capabilities. Organize around the skills you need, not the skills you have.
Let s look at each of these principles more closely.
Form Follows Function
Many companies still use a traditional operations model. Yet improving end-to-end supply chain performance is extremely difficult in an organization with a functional structure and management responsibilities. This is why any integration of your supply chain processes likely will require major organizational change to align your people, processes, and metrics to support your strategy. Agere Systems is an example of a company that reorganized to support a new top-down planning capability. Agere provides advanced integrated-circuit solutions to manufacturers of personal computers (PCs), wireless terminals, network equipment, and disc drives. In the mid-1990s the company made major investments in supply chain systems for enterprise resource planning (ERP) and advanced planning and order management. With the new systems in place, it was able to do fully integrated, automated planning everything from high-level supply chain planning to production scheduling for each manufacturing facility on a daily basis. The goal was to greatly simplify planning, keep manual intervention to a minimum, and improve customer service while improving asset utilization.
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