People – The overlooked factor

Supply chain professionals worldwide are struggling to manage during a time of unprecedented change; what was standard practice yesterday is ineffective today. To succeed in this volatile business environment, companies need to implement a new supply chain model, says Dr. John L. Gattorna. In his latest book, Dynamic Supply Chain Alignment: A New Business Model for Peak Performance in Enterprise Supply Chains Across All Geographies, Gattorna and his co-authors suggest a model that addresses not only technology and infrastructure concerns but also recognizes the influence of "the human dimension" —the decisions and choices made by people at all levels of a company and throughout the supply chain.

Known around the world as a leading thinker, author, and lecturer on supply chain management, Gattorna owned a consulting firm in his native Australia that specialized in logistics and marketing. From 1995 to 2002, he led the consulting firm Accenture's logistics strategy practice in the Asia Pacific region. Since then, he has taught at several Australian universities. The author of such widely used books as Living Supply Chains: How to Mobilize the Enterprise Around Delivering What Your Customers Want and Handbook of Supply Chain Management, he is a frequent speaker at conferences and universities worldwide.

In an interview with Editor James A. Cooke, Dr. Gattorna discussed some of the new book's principal ideas.

You and your co-authors raise the idea of dynamic alignment, a new business model for peak performance in supply chains. Can you briefly describe this model?
The model breaks with convention. It is constructed of four levels and mixes the soft —human behavior —with the hard —assets and technology. Essentially, the model contends that for companies to deliver sustained operational and financial performance, you need four dimensions to be aligned. They are: an especially deep understanding of your customers' buying preferences in the served market; appropriate value propositions for the different behavioral segments identified in your marketplace; the internal, cultural capability inside the business to execute these value propositions; and finally, the leadership style of the top team, which is so important in shaping the required (and sometimes conflicting) subcultures. The model also looks at source markets on the supply side, and it proposes the alignment of the business with suppliers as well. So it has both a demand-side component and a supply-side component.

Why do companies need to adopt this new model?
Current practices, even in the so-called best companies, focus on technology, infrastructure, hard assets, processes, and the like. But they fail to recognize the critical importance of human behavior and decision making throughout the supply chain. At least 50 percent of the activity in enterprise supply chains is driven by humans making choices and decisions. On the outside, it is customers and suppliers, and on the inside, it is employees, management, and boards of directors. Yet where have we allowed for this major influence in the design and operation of contemporary supply chains?

To be blunt, this "human dimension" is at best ignored, and at worst, we see companies in denial about the role of human decision making and behavior. In effect, it is like an engine firing on half its cylinders. Until companies can come to grips with how to link their customers with their internal workings and leadership, the best we can hope for is 10- to 20-percent alignment, which is very wasteful.

What we have to recognize is that the old "one size fits all" model is dead, and that it must be replaced by a multiple-supply chain alignment model that can deliver around an 80-percent fit with the marketplace, even in changing and volatile trading environments. This approach provides new meaning to the word "flexibility."

Are any companies using this model right now?
Zara in Spain is mixing an agile supply chain on the demand side with a lean supply chain on the supply side. Adidas in Europe implemented some alignment principles for the 2006 FIFA (International Federation of Association Football) World Cup in Germany, and it managed to reduce its lead times by 80 percent. Dell is in the middle of reviewing its go-to-market strategy and how it will align with its changing customer base, which is made up of consumer, business, corporate, and educational segments. Ditto for Nokia, which is in the midst of a major transformation to catch up lost ground conceded to Apple.

Parts of DHL in Asia/Pacific have implemented the dynamic alignment model, with stunning results. ... Several companies in Brazil have also transformed themselves using alignment principles, assisted by Axia Consulting in Brazil. Elgeka, a major distributor of branded consumer products in Greece, is embracing alignment for its business on both the supply side and the demand side. ... And the numbers grow daily as the word spreads. ... The common theme is that in each case the leadership has a close understanding of, and empathy with, the customers and suppliers.

In the book, you make this statement: "Out with balanced scorecards in the supply chain, and in with biased KPIs." What do you mean by that?
Despite the fact that balanced scorecards have been widely applied in businesses, in my opinion the system is too general and unfocused. As such, a lot of effort goes into collecting the required data, but this generally is poorly interpreted and ineffectual in the execution.

What I am suggesting instead is that, once you know that you have to service three or four different customer types in terms of buyer behavior, this automatically defines the matching supply chain configurations that will be required to achieve multiple alignment. And as we configure each type of supply chain and develop the necessary capabilities, we will, among other things, decide which KPIs (key performance indicators) are most appropriate to drive the behavior of internal staff in the desired direction. The KPIs are specific to the type of customer and the relevant supply chain.

So, for example, for those customers who are collaborative, we incentivize our people first for retaining them as long as possible, and second, for increasing our share of wallet. Those are the two KPIs that matter, and the rest fade into insignificance. That's what I mean by "bias."

You wrote that by 2030, there will be a need for differentiated service offerings and a supporting portfolio of supply chain types. Can you expand on that idea?
By 2030, I think, many of the alignment ideas —as applied to the overall business and within that context, the enterprise supply chains —that I propose in the book will be widely embraced by companies that have consciously reset their supply chain strategies. In particular, companies that will be thriving will be those that have moved away from treating supply chain as a specialist function to treating supply chain thinking as more of a business philosophy that must be adopted in some part by all functions. At that stage, supply chains will be the business, and the business will be supply chains.

Editor's Note: Dynamic Supply Chain Alignment: A New Business Model for Peak Performance in Enterprise Supply Chains Across All Geographies, published by Gower Publishing, is available through a variety of outlets, including online booksellers, the Chartered Institute of Logistics and Transport, the Chartered Institute of Purchasing and Supply, and other organizations.