January 20, 2011

Is your top team undermining your supply chain?

Creating a global supply chain that is equipped to thrive in a world of rising complexity and uncertainty involves more than reconfiguring operational assets and making long-term strategic bets about production-and supply-related risks. Significant organizational challenges are involved, too, since the decisions and activities of a company’s supply chain group influence (and are influenced by) the sales team, marketers, and product developers, among others.

The result is a host of thorny trade-offs. Should a company, say, move a product to a low-cost manufacturing facility to save money if that means lengthening delivery times? What if trimming the company’s product portfolio to reduce manufacturing complexity and costs could stifle marketing efforts to reach new customers? When do the benefits of improved customer service warrant the additional operating expenses required to deliver it?

Supply chain, sales, and marketing managers invariably view such trade-offs through the lens of their own responsibilities—and this perspective often leads to disagreements or misunderstandings. Indeed, a recent McKinsey survey of global executives cited the inability of functional groups to understand their impact on one another as the most common barrier to collaboration for resolving the major supply chain trade-offs.

Ineffective collaboration has long been a supply chain sore spot, but its costs are set to rise drastically. If it’s hard to agree on the right response to a disruption in a supply chain today, it will be more difficult still when companies deal with multiple interconnected supply chains, each possibly requiring a different solution. And consider the short- and long-term supply chain trade-offs executives must balance in a world where one business unit might be asked to shift its manufacturing lines to a more expensive near-shore location today to build capacity as a hedge against potential future spikes in labor or transport costs.

Finding mechanisms to solve these and other difficult supply chain questions will require hands-on attention from the CEO and other company leaders. The process begins when executives work together to identify places where better information sharing and teamwork will generate the most impact. Let’s look, then, at three of the biggest collaboration tensions we routinely observe and see how companies are bridging these organizational divides to create more flexible and capable supply chains.

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