What is common in the 1960s family setup and how we manage our businesses, including our supply chains & operations today?
What exactly are these commonalities with our analogy?
1960s family life & setup (still true in some places):
Man of the house goes out every day and glamorously earns money & supports wife (and kids if there are any)
Woman of the house stays at home and "spends" that money, making the man's life seamless and glamorous
There is no sharing of activities (men doing no household/homestead work, women doing no external paid work)
Man controls how the woman spends the money, even though he doesn't have a clue how the work needs to be done and the woman needs to ask for permission for every decision or direction taking
Nobody acknowledges the unpaid work of the woman and nobody realizes that she doesn't merely spend that money, but she enables the man's earning power by providing stability, creative solutions to problems and an environment where he can focus exclusively on his work and doesn't have to worry about the rest
Translation to business setup that's still alive today:
Sales/commercial bringing in hard earned topline results (money) and finance controls what can be spent on
Supply chain & operations spending that hard earned topline result and "sinks" it via bottom line spend
Businesses exclusively associate commercial with earning money, finance with controlling money and supply chain & operations with spending money
In the management's view, there is no direct connection between these activities, only indirect (or only causal, not value-based)
Finance controls the "spend" through budget and they enable commercial with ample resources while only looking at supply chain & operations as a cost sinkhole needing constant cut on their annual budget in the name of efficiency, coupled with external control (other than the supply chain & ops leaders)
The empowerment of commercial by supply chain is going mostly unnoticed, unless something goes really wrong
The immense creative work of supply chain teams to provide the stability for the business goes also mostly unnoticed and unacknowledged, while sales gets full credit for bringing the money in and finance for keeping good control
Do you see the similarities? I do.
What is the key issue?
The lack of actual understanding and acknowledgement that no function in either a family or a business can function without the others and all of them are earning, controlling and spending money, as they are part of the same business and the business earns/controls/spends the money, not a single function. The functions should act in the best interest of the overall business (isn't that what's in everyone's employment contract? 😉).
Let's look at reality for the points raised above for business setups:
Every single person working in all of your functions represent the entire organisation
Every single person earns and spends at the same time (if not, the role should not exist in the organisation)
Every activity executed contributes to your profitability (both top & bottom lines)
Every activity has the power to control the pace, the flow and the results of the business
Everyone enables your results
Everyone needs creativity to overcome issues and find the best fitting solutions to protect your results
That's also why many company initiatives fail, when functions have the wrong mindset and attitude about their contribution to company results.
That's also why in business management we talk about value chain management and not merely supply chain management.
We can safely agree that the points listed for the reality above should be true (like every business likes to emphasize when they try to elevate their company branding 😇).
Then why do I still see the below issues when I talk with supply chain professionals (middle to higher management), or when companies approach me with projects and start talking?🤯
Head of SCM roles with an organisation reporting to them over 100 FTE locally, but cannot decide on their own to change the organisation below them, including JDs, R&Rs and pay grades (within the available pay grading system)
Matrix organisations have supply chain roles still reporting directly to Finance in countries, while employing leaders in regional leadership roles who get responsibilities to improve the whole organisation & processes, but have zero control and say in actually who are in the critical positions, how the R&Rs and JDs look like and what is expected from these roles below them (despite theoretical indirect reporting lines being in place)
Supply chain budgets & FTEs are cut every year without substantial evidence that there was an overspend or lack of effort to optimize spend on any of the budget lines vs baseline spend, while asking them to deliver more as sales expectations were increased
Allocating spend to shiny object syndrome projects which supply chain never asked for, but someone sold it to the finance/C-level leadership and supply chain leaders have never had a say in actually needing it or whether it would improve the function
Supply chain leaders not having proper budget to take care of their organisations, only the bare minimum and every single spend needs to be justified to finance or others in the leadership, who have no idea and no competency to tell if it is really required
Giving authority to finance or whoever else to hire for supply chain areas where they have zero clue of what would be beneficial (including that an organisational setup design was never truly attempted to see which capabilities would be actually needed)
I'll be honest:
If you don't know how to baseline your business' core activities for cost and where those should be, then it is probably better to sell the business to someone who knows or ask them to lead it (as long as you trust them). I wonder how the business was started in the first place.
Hint: this is an internal exercise and not an external benchmarking one (external benchmarking is built into your sourcing processes in the first place, that should have provided you with enough information, if run correctly).
If you cannot trust your supply chain leadership that they are good owners of their own budget and can decide on which roles, at what level and for how much is needed, then you need to employ someone whom you can trust with these, then let them lead.
Hint: The actual lack of authority is the among main reasons why you miss out on hiring the best talent for this role, on top of not having clear expectations and a clear dialogue between leadership levels resulting in clouded, muffled information exchange between layers.
If you still think that supply chain reporting to finance is a good idea, instead of having it as a standalone function, then you'll constantly lose all the talented and motivated supply chain professionals (revolving door syndrome, or apathy and under-performance are 100% assured).
Hint: Especially if this is driven by internal politics instead of objective decision making, or even worse, if finance leadership actually thinks they know it better (they don't, I taught and coached a few of them).
If you still believe in matrix organisations, instead of clear governance, responsibilities and reporting lines, you'll constantly lose all your best employees (not even only supply chain) as they won't buy into mushing accountability and support when they most need it from you and it disables decision making.
Hint: If you cannot change matrix organisation now, at least make the direct line according to where the most business interactions & information are, and not somewhere else, but also don't expect functional leaders from regions to apply pressure for changes (make up your mind if you operate multi-tier organisations about governance and oversight, mixed reporting lines won't replace good governance).
What can be done to get the value out of your value chains then?
Be clear on what your business does and what core capabilities you need to execute, what baseline cost structure you can operate with and what profit you need to earn + regenerate the environmental and social resources you use (to have a sustainable company) - by these you should be able to set realistic profit expectations as well
Design functions accordingly and unless you are a startup, do not mix functions
Communicate & live your core values and expectations clearly and unmistakably (including behaviour etc.)
Get functional leaders in place who have the relevant functional knowledge, they are mature in personality, capable to lead and collaborate with each other, they can make critical business decisions, have creativity and are able to set up the organisation below them with the operating limits (or you need to redo that exercise)
Set up governance & control mechanisms for the business as a whole
Let the leaders set up their functional organisations, governance & control mechanisms and relevant processes & systems
Let your leaders operate, monitor & improve from there (whichever improvement model they choose)
Change the leaders, if they don't perform, or if they need new motivational sources (at this point you should have viable successors to choose from based on the above points)
TL:DR (too long, didn't read)
It doesn't matter what fancy tech stack or consultancy support you buy, if your organisation is maimed by incorrect setup, lack of communication & collaboration from within and cannot embed ownership at all levels by assigning the right level of authority. For this, you as the owner need to enable your leadership teams (see point "what can be done" above). The action points can be executed for existing, operating companies as well, just need focus and a good change plan.
Don't operate your business & supply chain like a family from the 1960s!
If you want to know more about any of the points, we can hop on a free call and give you further details on how to execute these for your business' benefit!