My quest to build holistic thinking in organizations stretches over many decades. It is easy to say “be a holistic thinker”, but it is harder to define the behavior. As demand and supply variability increase and markets sway with unpredictable shifts, I think that holistic thinking matters increases in importance to drive corporate performance and is worth the fight. Here I share stories of my journey to help others.
To understand my thinking, let me share my conversation with Scott and then the experience with Fred, Mark, and Hugo. I will end with a reflection on a discussion of Lora with her good friend Mary at the end of this blog.
Scott. A Walk That I Often Remember
Let’s start at the beginning.
In the 1990s, I transitioned from managing an emerging supply chain organization at a mid-sized manufacturing company to working for a supply chain planning company. When I joined the software company, I had just finished my MBA at Wharton School of Business. I loved my classes in supply chain strategy and naively believed that companies actively applied the principles of Porter’s theory. I was excited that supply chain modeling could become a corporate linchpin to drive success by selecting alternative and winning strategies.
I thought that I could make a difference. My vision was simple. I imagined teams in corporate offices making practical trade-offs in the design and alignment of business processes. (I know, enjoy your laugh. I was so young and gullible.) This is before I understood what a substantial and detrimental effect functional business processes had and how they strangle corporate performance.
I attended the company kick-off of the software company with wide-eyed amazement. I had never experienced the level of hoopla and frivolity. The bonus incentive programs of the sales teams in software sent my humble West Virginia country girl roots into overdrive.
At the break of the first sales kick-off meeting, I took a walk with a friend named Scott. As we walked, I reflected and kept asking Scott, “How can we optimize outcomes if companies are not clear on what defines excellence?” And “Companies do not have one supply chain, but many. How do we define and align supply chains market to market?” We reveled in an esoteric dialogue and enjoyed the fresh air only to return to a room of sales and business development teams primarily interested in selling software.
My first assignment at the software company was to work with a paper company. There Sue, a nervous Director, worked for Tom. Tom’s drive was to become the Chief Operating Officer, and he was interested in implementing supply chain planning at the recommendation of his CIO, Sean. The goal was to be more customer-centric through the better use of sales information. Sean strongly believed that the sales group knew what the customers wanted and that tight supply chain integration to sales information would drive excellent results. When I asked about strategy, Tom, Sean, and Sue shrugged. Sean’s answer was, “Doesn’t the software do that?”
I quickly learned that the goal was project implementation: a race to tightly integrate sales information to drive demand planning. The project was a disaster. Yes, the software went in on time, but the company went bankrupt and floated around in the sea of refinancing for two decades. Sales incentives drove a positive bias that inflated inventory. The functional sales organization was not in alignment with the larger market.
I met Tom again two decades later at a conference in Chicago. Still in the same job, but forty-to-fifty pounds heavier, I introduced myself. He did not remember me, and I did not mention the prior engagement. Wryly, I asked about his experience with supply chain planning. His response was predictable. The comment between sips of coffee was, “We tried to improve the business through the deployment of supply chain planning but had mixed results. As a result, I don’t believe in planning.” I smiled and walked away.
My goal was never to have another engagement like the one with Tom, but then I met Mark.
Mark and Hugo: An Organization Taking a Functional Path
In my career as an industry analyst, I have been fired twice. Once was by Mark. (Sometimes it is good to be fired.)
Mark, an egotistical CFO, let me know quickly that he was an expert in the end-to-end supply chain. At the first meeting. I smiled, and asked, “How would you define supply chain excellence? And, how do you define the end-to-end supply chain here at this company?” He was unequal to the question. His answer was a rant of information. He outlined his many years as a business leader at Kraft and his implementation work with SAP. The one-way dialogue continued for an hour, with Mark steadily drip-feeding me with more information about his expertise and ending with him opening his desk to give me the recent audit by the SAP sales team on the organization’s use of data.
I listened. Mark’s goal was to fast-track his career to become the Chief Operating Officer (COO). His understanding of supply chain was limited, but he was not open to holistic thinking. Mark worked for Fred.
Fred was a brilliant entrepreneur. Extremely eccentric, Fred was attempting to move to a board position and transition his company to a professional leadership team. Building the company tapped his energy and he was tired. Mark was one of his first hires. His second was Hugo. He put infinite trust in them.
Hugo previously worked for Diego and P&G. With a traditional marketing background and a Harvard MBA, Hugo’s goal as the Chief Operating Officer was growth. Hugo and Mark were great friends and often made fun of Fred’s strange ways. Hugo gleefully shared that he knew nothing about the supply chain but was grateful that the guys in the factory worked so hard.
Fred believed in lean processes. I would characterize him as a lean bigot. His goal was to lean-out accounting, marketing, and manufacturing. Allergic to inventory, Fred worked out arrangements with distributors to push inventory into the channel. He saw all inventory as “bad.” The organization had constant debates–even fights– on building seasonal inventories and promotion inventory strategies.
Manufacturing assets were 95% utilized, and the company’s Modus operandi was reactive behavior. When Fred transitioned to the board, the company sold thirty-six items. Within five years of Hugo’s leadership, the number of items grew ten-fold. Concepts like network design, constraint-based management, and the form and function of inventory were new concepts appreciated by Fred but relatively unimportant to Mark and Hugo. (While Fred was open to learning, Mark and Hugo were not.)
Fred did not want to invest in more assets. His goal was to grow the company using contract manufacturing. The concepts of cycle stock management and product profile rationalization were new to the management team.
Mark forecasted based on currency and thought mix-based forecasting at an item level was essentially a waste of time. He was very proud of the finance team’s capabilities to forecast. S&OP sessions were primarily a meeting for manufacturing to take orders from marketing on new programs.
Fred believed Hugo’s programs needed fuel for growth through constant investment. Promotions were not measured, and as a result, demand-shaping programs proliferated unabated without discipline.
When I started working with the company in 2016, they were a Supply Chain To Admire award winner. In 2020, they were not. They fell out of the winner’s circle within two years. In Figure A, I share the orbit charts at the intersection of operating margin and inventory turns for two periods. (Figure A is from 2009 to 2016 before the addition of Hugo and Mark, and Figure B represents the patterns for 2011-2020. The impact of the undisciplined demand shaping activity is seen in the shifts in the margin.)
For the period of 20009-2016, Company A outperforms the peer group, while in the years of 2011 to 2020, the company underperforms in their peer group in margin but still outperforms inventory.
Figure A. Orbit Chart for Inventory Turns and Operating Margin from 2009-2016 for Company A. Performance Charted Against Peer Group.
Figure B. Orbit Chart for Inventory Turns and Operating Margin from 2011-2020 for Company A. Performance Charted Against Peer Group.
Did the uncontrolled and undisciplined demand shaping programs without the supply chain management drive the outbalance situation at Company A? One will never know for sure, but I am confident it contributed.
For me, it was a great example of alignment issues driven by egos and the drive for advancement. As students of supply chain management with a keen interest in process and technology, we often forget the human elements of motivation, promotion, and personality.
Mary Building Software Based on Traditional Role Definitions
My last story is recent. It is a story of a conversation with a long-term friend, Mary. She is one of my closest friends and is excited about her new role at a software company to design and implement revenue management processes.
I called her to extend well wishes for her new assignment on a whim. By mistake, I drifted into a conversation on Project Zebra and my desire to build outside-in processes starting with demand management to sense and translate demand. The three public classes are full and I am excited to test the potential of new models with business leaders.
Excited about the potential of newer forms of technology to redefine demand modeling based on market signals to drive a role-based model across marketing, sales, finance, and supply chain, I shared that I believed that the days of revenue management were numbered. (OOPS!)
I share the concepts of Project Zebra in Figure C.
Figure C. Glossary Terms for Project Zebra Shared with mary
In my conversation with Mary, I explained that with the evolution of modeling that a single model could manage the demand shaping programs (modeling of the relationships of price, promotion, advertising, assortment, and advertising on lift) and improve the discipline of demand shaping so that the organization would see minor demand shifting (moving product sales from one period to another without a rise in baseline lift or market potential). (Sometimes, I cannot control myself.)
She quickly responded that no supply chain leader would “buy” outside-in processes and implement a modeling tool to evaluate shaping versus shifting. While I agree, we got into a laborious and, unfortunately, heated discussion of the definition of a supply chain organization.
Unfortunately, over the decades that I have spent as an analyst, the term supply chain has become much more limiting becoming just another function within a functional organization. Functional silos developed thicker and more forbidding walls over the last decade. This is a stark departure from the original supply chain goal of a process to align the organization to better serve the customers’ customer through the design of end-to-end processes from the channel through to the supplier’s supplier. This digression drives me nuts.
Figure D. What Is a Supply Chain Organization?
Seeing that I was in a no-win discussion, I begged off the debate, feigning that I needed to be on another call. However, the conversation with Mary reflects the ultimate tension for companies to accept and implement new forms of analytics to sense and respond more intelligently to demand. It requires realization that:
- Functional Thinking Must Be Killed. Functionally aligned organizations constantly throw the organization out of balance because functional objectives do not align market-to-market. Sales-driven or marketing-driven is not the same as a market-driven.
- Changing Paradigms. Historical definitions of decision support chopped-up models due to technology limitations. Organizations evolved to use this more limiting taxonomy. Now that more holistic models are available, can organizations rethink work to model cross-functionally?
- The Term Supply Chain Is Politically Charged. For me, the supply chain is the business process from customer’s customer to supplier’s supplier, but for others, the supply chain is just another functional group within a functional organization. It is a more limiting definition. The politically charged nature of the term makes discussions challenging.
- Need for a Balanced Scorecard. Traditionally, the focus for the supply chain leader is cost mitigation. I strongly feel that the companies need a balanced scorecard with a focus on margin. This allows teams to manage the trade-offs between demand shifting and shaping more holistically.
I will give Mary a call in a couple of weeks and talk about ANYTHING other than work. I must give it time.
On Monday, I am videotaping a segment on building organizations to maximize the value of new forms of analytics. One of the questions is what does it take? My answer is holistic thinking. I am hoping that you can see from these stories what I mean. I look forward to hearing your stories. I am sure that you have some good ones.
To think about the potential of new forms of analytics on organizational design, here I share my recent research released last week. Let me know your feedback.