It's all right to philosophize about key concepts in supply chain management, but sooner or later, we've got to figure out how to get organized to deliver the goods. What kind of organization does it require to support, enable, and promote effective supply chain performance?
That depends on a number of factors: what kind of company you're in, for example, as well as the company's overarching strategy. It depends, too, on the organization's intrinsic culture, on precedent, on politics, and on the key players' personalities. And on how mature and progressive the company's supply chain vision is.
The debate often begins right at the top of the corporate hierarchy with the question of where supply chain management fits into the organization—a debate that sometimes takes what we consider to be some odd twists. We recently read a protracted discussion in a distinguished journal regarding the correct organizational placement and reporting level of supply chain management (SCM). The debate centered on two seemingly logical candidates: the chief information officer (CIO) and the chief financial officer (CFO).
We can scarcely imagine two worse reporting placements. One, the CIO, is in charge of acquiring, developing, and maintaining the information technology and tools—hardware and software—that enable and support operations, decision-making, and reporting throughout the enterprise. The CIO is no more qualified to lead SCM than a 911 operator is of heading a crime scene investigation.
The CFO may be marginally worse as a candidate. We need bean counters; we should respect creative bean counters. But in military service, the Inspector General does not get asked to lead troops into combat, and the CFO is in no better position to lead the supply chain.
Note the deliberate use of the term, "lead." SCM isn't about reporting or administration; and it certainly needs leadership more than it requires management. The supply chain is nothing less than the sum of a company's moving parts. And supply chain management is nothing less than strategy made real—delivering on marketing's representations, meeting sales' commitments, supporting customers' business requirements, solving problems (sometimes before they happen). In short, it's SCM that delivers on the "promise of the brand."
That alone argues for supply chain management to report to the top. If SCM isn't reporting to the president, something's wrong, either structurally or conceptually or both. And if SCM is called something other than SCM, like "logistics," or "physical distribution," there's trouble ahead there, too.
What is SCM anyway?
Maybe part of the problem defining the SCM organization lies in defining SCM itself. There's one school that holds that much of what we call SCM today differs only semantically from what was done in the past. The thesis: traffic management became physical distribution became logistics became supply chain management—successive new names for the same thing.
We disagree, contending that traffic management became part of physical distribution became part of logistics became part of supply chain management. So, functions that were part of the old traffic management may still be found in today's supply chain management, but the two are not even remotely synonymous.
In our opinion, the Council of Supply Chain Management Professionals has it pretty close to right. Its definition of "supply chain management" includes not just logistics activities but also sourcing/procurement and conversion (manufacturing) along with responsibility for all coordination and collaboration with outside partners, including suppliers, customers, and third-party logistics service providers.
With that in mind, a case may be made that most everything but finance and accounting, sales and marketing, and IT is part of the SCM organization. One major consumer products manufacturer attempted just that in the early '90s, but we're not sure that the integrated SCM organization has survived successive mergers and acquisitions.
Plays well with others
Assuming everyone can agree on what falls under SCM, how, then, should the group be organized? One large and persuasive school of thinking holds that it's just not possible to sketch out an ideal SCM organization. Companies are too different from one another in culture and history, industry characteristics, strategic approaches to the role of SCM, understandings of the span and scope of supply chain management, and visions for what the future will look like.
We agree. In our experience, a variety of real-world considerations and specific local conditions inevitably drive how organizations are actually structured. And even in a company with an integrated SCM perspective, there may not be a singular command and control structure. There may be dotted lines to operating functions in various corporate divisions, or subsidiaries. There may also be dotted lines to SC functions that report elsewhere within the corporate structure.
In fact, it seems that the likelihood of success at the top of an SC organization increases exponentially for masters and mistresses of matrixed relationships— and diminishes disproportionately for those who can't live without tight structure, organizational discipline, and a recognized command position. As old-style, vertically hierarchical organization structures continue to re-form themselves for the 21st century, those of us in the supply chain business need to embrace flatter, high-communications, high-collaboration organizational models.
In its highest form, our organizational role in SCM includes the mandate to work and play well with others—in their sandboxes, not just our own. What's important is understanding how SCM functions and processes relate to core corporate functions and objectives—and then working to maximize the SCM contributions to organizational success.
We'll continue to have all the usual responsibilities—and pressures—for higher performance at lower cost. But we'll also have the freedom, and power, to move across and through organizational boundaries—working closely with sales on specific, and general, customer issues. Working with marketing on approaches to markets and channels. With R&D on product design and strategic advantages in time-to-market techniques. With finance and accounting. And with IT on the tools needed to enable best-in-class planning, decision-making, and execution in supply chain management.
A steep challenge
A pipe dream? Not really. A tall order? Certainly. But the secrets of success in SCM organization do not lie in lines and boxes on an organization chart that's pulled out of the file only when a visiting consultant asks to see it.
The keys to this particular kingdom are contained in the following: