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CHAPTER 3 Core Discipline 3: Design Your Organization for Performance
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The development of supply chain management as a core competency and an orga- The development of nizational imperative doesn t just happen a supply chain conscious effort is needed. As a discipline, supply chain management is constantly management as a evolving, and its impact on business perforcore competency mance is growing. Staying on top of best practices in supply chain management is and an organizational challenging enough; ensuring that the rest imperative doesn t of your company does the same is even more difficult. just happen a How do you ensure that an integrated supply chain is viewed as being as critical to conscious effort is business success as product development or needed. marketing and sales An education and awareness program can be a key driver. Metrics also can be a powerful tool in communicating the benefits of a highly integrated supply chain. Start with a quantitative gap analysis expressed in terms that any executive can relate to bottom-line impact. For example, research by PRTM s benchmarking subsidiary, The Performance Measurement Group, LLC, shows that best-in-class consumer products companies enjoy a whopping 5.5 percent (of revenue) advantage in total supply chain management cost over median performers. For a $150 million company, that s more than an $8 million difference in cost savings.10 Results are the ultimate attention-getter. Following the gap analysis, make a change to your supply chain that delivers a sustainable improvement in costs or service and use it to get attention. This is what Angel Mendez did at palmOne, Inc. palmOne is one of the world s leading developers of personal digital assistants (PDAs). When Mendez joined the company in 2001 as senior vice president of global operations for the solutions group, he was given the task of transforming the supply chain into a competitive differentiator no small task considering that palmOne had just been forced to write off nearly $300 million of inventory. The first item on his agenda: educating palmOne s senior management on the critical role the supply chain plays in executing the company s strategy. Before I arrived, says Mendez, palmOne had had eight consecutive quarters where it was difficult to produce enough product to keep up with demand. The mind-set had always been building product, then pushing it to the channel. The supply chain organization was viewed as the means to get the product made. There were really no other expectations. 11
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Strategic Supply Chain Management
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Mendez aimed to raise the visibility of his organization and garner support from the senior management team. The recession that was in full swing when he joined the company actually proved an advantage. Sometimes it takes a shrinking economy to get the CEO to focus on the supply chain, he said. Catastrophe can be a catalyst. Why not leverage this fact to get what you need He quantified the financial benefits an upgraded supply chain would deliver to the company and its shareholders. Then he developed a clear roadmap for getting there. Mendez s roadmap included a fundamental overhaul of the supply chain processes and organization. We had a lot to do, he noted. The plan we put in place was iterative. It allowed us to prioritize, get some initial wins, [and] then justify the resources it would take to execute the next step of the plan. palmOne had a weak demand-management process, making it difficult to see the level of activity within the sales channel. Decisions to build product were based on inaccurate forecasts rather than on current market activity. Manufacturing and material costs were high relative to those of other consumer electronics companies. Relationships with key suppliers and customers were strained. And the company used four different service providers to repair returned units, resulting in few economies of scale, a high repair cost per unit, and a highly complex returns-management process. Still, Mendez didn t own all the core supply chain processes. Product groups were responsible for demand management. Repair and support were managed on a regional basis within the sales organization. The company had always focused on the supply part of the supply chain, says Mendez. They weren t used to thinking of an end-to-end process. So the supply chain organization was mostly focused on procurement, with enough planning capability to determine what needed to be purchased. And not everyone within the organization was as highly skilled as what was needed for the environment in which we operate. Mendez used the Supply-Chain Operations Reference-model (SCOR) (see Core Discipline 2), to build the roadmap for his organization and for the group process-improvement efforts. He developed a threephased plan to be executed over two years. Then he began to restructure the supply chain organization, taking on responsibility for demand management, repair, and product support. He knew that his title of senior vice president made the task easier. My title helped me cut through a lot of red tape, he says, but so did the fact that I was able to clearly demonstrate the benefits of an integrated organization. palmOne s new supply chain organization was set up as a global organization with localized capabilities. Mendez s staff included a direc-
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