I’ve spent a decent amount of time over the past couple of years focusing on gaining a better understanding the “integrated supply chain organization.”
| Gilmore Says:
"Since supply chain is all about the horizontal integration of processes, and should be about optimizing total supply chain performance, for many of us, the “integrated supply chain organization” seems like it should be the natural state of affairs."
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Just what is that, you might ask? Well, in general, I take it to mean a unified organizational structure, under a single leader, that encompasses all the traditional supply chain-related functions from source to consumption: sourcing/
procurement, manufacturing, global logistics, distribution and transportation.
But the topic is actually quite complicated.
I got on this theme two years ago at a great meeting on this topic at the Supply Chain Executive Forum at Georgia Tech. There, we heard IBM’s Sal Calta describe the company’s 10-year journey to integrate its vast global supply chain operations. I’ve heard other versions of the IBM story before at larger venues, but in the smaller, more informal setting of the Executive Forum, Calta described very candidly the great benefits – and challenges – that resulted from making this transition from a more traditional functional supply chain organization to an integrated one.
As some of you know, we recently launched a new publication CSCO (Chief Supply Chain Officer) Insights, under the editorship of Gene Tyndall. It’s the only publication and web site geared specifically at the information needs of current and aspiring supply chain executives. The first issue of the hard-copy newsletter was mailed in May to about 4000 SCDigest subscribers who fit that profile, and focused on the integrated supply chain organization.
You can download an e-version of the premier issue and/
or apply for a subscription at www.cscoinsights.com. The web site will soon be expanded, but we are off to a good start.
For the premier issue, the research arm of CSCO Insights did an analysis of the Fortune 125 product companies (manufacturers, retailers, wholesalers – not banks, insurance, utilities, etc.). It looked in detail at company web sites, and supplemented that with some additional research.
The research showed 25% of these Fortune 125 companies had a single executive in charge of an integrated global supply chain, per the definition above. Another 26% of the companies had a supply chain-related executive/title among corporate officers, but that executive did not have responsibility for the entire supply chain. Often, purchasing/procurement was the missing function; in other cases, it was manufacturing.
A few companies, such as Whirlpool, have an integrated supply chain organization within North America, but not yet on a global basis.
34% had no supply chain-related executive listed among corporate officers/executives on the web site. While this does not conclusively demonstrate the lack of an integrated supply chain organization, logic says that such an organization/executive would be listed among the company’s senior executives.
This research is supported by anecdotal evidence from the executive recruiting world.
“The number of fully integrated supply chain organizations is still surprisingly low, but increasing,” says Dave MacEachern, head of the thriving supply chain practice at Spencer Stuart, one of the leading executive recruiters in this space. “If I were to guess, it is 25% of the time that we see true end-to-end supply chain requirements when companies are searching for a supply chain executive.”
Since supply chain is all about the horizontal integration of processes, and should be about optimizing total supply chain performance, for many of us, the “integrated supply chain organization” seems like it should be the natural state of affairs – even if we recognize it may take a while to get there. There is no question we now see more announcements of people with the actual title of “Chief Supply Chain Officer,” or at least VP of Supply Chain with end-to-end responsibilities. But these are often at mid-sized companies where the transition is simpler – I’ve noticed, for example, a number of restaurant chains in the last year creating the new position of CSCO – who’d have guessed?
But it’s actually a complicated decision framework. In deciding how much to “integrate,” you need to consider at least three variables:
- Business Unit Level: Is there an integrated organization for a given division, or the whole company? When does it make sense to start to think corporately? For example, I don’t think anyone would argue for GE having an integrated supply chain across businesses as diverse as medical systems and aircraft engines. But what about Unilever? In North America, it had separate supply chains for its food and personal care products businesses, until the businesses themselves were merged a couple of years ago. This can be a tricky question.
- Functional Level: What functions go into an “integrated supply chain organization?” Above, I defined it as procurement through delivery, but procurement can also be tricky. Should the direct procurement function be under the supply chain, and a separate purchasing function under finance or something for indirect materials? Interestingly, we are seeing a simultaneous rise in both CSCOs and Chief Procurement Officers. Also, in consumer packaged goods, customer service has often fallen under logistics – when should that be part of an integrated supply chain organization? Ditto with other functions not clearly part of the traditional supply chain domain.
- Geographic Level: Many companies are organized by geography. So, to have a single supply chain organization that manages the supply chain across those regional businesses may be tough to accomplish – meaning the changes would not be welcomed by geographic execs who want to control their own destinies.
So, these are the questions, as Gene Tyndall likes to say. I used to think once a company moved to an integrated supply chain organization, there would be no turning back, but find now that it isn’t the case. In the past 2-3 years, HP, GAP Inc., and 3M have all retreated from the integrated supply chain model, each for different reasons.
Still, I believe we will see the continued rise in the integrated supply chain organization and more and more Chief Supply Chain Officers, whether by that exact title or not. I can just point to what IBM has said have been the benefits of their integration efforts – billions in costs savings and free cash flow generation, 6% reduction in cycle times, lower inventories and more. Scale those big numbers down for your business, and it’s still a lot of savings.
I don’t know how far, how fast, but I think there is no question that 5 years from now, the percent of companies with CSCOs will be much higher than where we stand today.
What do you see as the framework for building an integrated supply chain organization? What are the limits of the model? Is this the right model ultimately for almost every company? Let us know your thoughts at the Feedback button below.