Logistics Management: When to make "exact change"
Narendra Mulani -- Logistics Management, 4/1/2009
Supply chain executives are currently facing two distinct road blocks. First, there's the disruption borne of globalization; and second, there's the fallout from the global economic meltdown. As a result, many supply chain executives are now looking for new answers and approaches to operate more effectively—and are replacing their supply chain operating model.
This is not a task to take lightly. However, supply chain executives may be prone to focus more tightly on the nature of their new or revised model than on how those changes will actually be enacted. But making change is really the more critical issue.
Accenture's view is that while multiple paths to change exist, only one path is optimally suited to any particular company's attainment of operational excellence. After all, companies vary significantly in their ability to accept risk, accommodate change, marshal resources and so forth.
For this reason, it may be helpful for supply chain executives to begin thinking about the change process as much as they think about their new supply chain model. Based on our experience, it is helpful to think about the process in terms of three high-level choices: a continuous improvement program, a transformation program, and a targeted intervention program.
Continuous improvement usually involves a large number of small initiatives that are led by divisional or geographical leaders. Those efforts yield quick benefits and require relatively small investments. The continuous improvement journey best suits an organization that believes it has a solid target operating model defined and that favors decentralization of authority to carry the model out. Common drivers include:
-
recent, but not yet optimized, investments in new capabilities;
-
awareness of untapped operating potential;
-
need to reduce execution costs and improve margins.
Zurich Financial Services used a continuous improvement approach when it set out to become recognized as "One Zurich" in its key markets. Focused on standardizing business processes and methodologies, the initiative helped the company improve its core skills and lay new foundations for profitable growth. Zurich Financial Services estimates that this approach has yielded more than $2 billion in efficiencies.
Targeted intervention seeks to hone in on the area of greatest need—the action(s) likely to yield a high return on investment. With targeted intervention programs, there is typically a sense of urgency, a compelling reason to change or a newly identified opportunity for growth.
Given these incentives, organizations often decide to make big changes to their operating model, but opt to do it one piece at a time to minimize risk.
Often the focal point is supply chain functions or processes, such as creating a new shared services entity or moving select supply chain operations to a tax-favored locale. Two important criteria are a relatively high certainty of a positive outcome and return on investment that is easily measured.
Global Bakery Corp. chose a targeted intervention approach to integrate a key unit with the rest of the business. The primary thrust was folding a business unit strategy into an overall corporate strategy. The company estimates that its efforts helped reduce costs by $75 million, while increasing annual revenue by more than $40 million.
Transformation programs involve change on a grand scale, almost always with complete reinvention of the operating model and big shifts in the organization's structure. Where there is the right DNA and the right C-level leadership to drive the program, transformation is usually the fastest way to get major change implemented. Common drivers include worrisome competitive activity and a recognized need to increase global agility or tap new markets.
Unilever's "One Unilever" program exemplifies transformation, with three broad-based initiatives:
-
Move to a single harmonized IT system—a precursor to supply chain optimization and simplification.
-
Identify restructuring and acquisition opportunities that help create a more focused portfolio of brands and a more competitive cost structure.
-
Implement a pan-country operating model to raise efficiency.
Selecting The Right Response
So how do companies know which of these journeys to take? Accenture's experience is that the path to operational excellence is clearer when companies fully understand the discontinuities (paradigm shifts) driving their change journeys. In effect, they spend a great deal of time examining the impetus for change.
Making clear-eyed assessments of the strengths and weaknesses of their current operating model also helps, because journey choices are determined largely by a company's own characteristics—its capacity for change, the skills and experience of its leadership team, its operating efficiency and the personal characteristics and leanings of its top managers. We have also found that the industry itself may provide clues. For example, most financial institutions choose targeted interventions, whereas retailers tend to choose continuous improvement.
Confronted with an onslaught of discontinuities, more and more businesses are seeking to change the basis upon which they compete; and they face profound choices about how to make those changes happen. Daunting as these choices may be, they are far preferable to the alternative, which is making no decision at all.
The Next Generation Supply Chain
10/11/2009The true meaning of supply chain management
05/31/2003
View All On-Demand Webcasts