Translating Supply Chain Strategies Into Action

Implementing a new supply chain strategy is a complex and awesome task. The strategy must span material and product flow from vendors to final consumption and encompass an array of difference organizations or functional groups. Employees must do different things, make different decisions, and perform in different ways. New networks of suppliers, manufacturers, distributors, and customers must be forged. Customers need to understand the benefits of new services and pricing; alliance partners need to share the same vision. New infrastructure across these networks, including computer systems, distribution centers, factories and support organizations, must be built or reconfigured. This must all be achieved in a framework of continuous operations ­ systems cannot be shut down while we remodel.

Four Prerequisites for Change
To achieve this massive change, pragmatic logisticians must move beyond proficiency in the hard areas of cost, time, benefits, and quality. They must become adept at managing stakeholders and their emotions, team building, communicating, commitment building, risk management, and people development. Change management is about building business success through managing people.

Our research and years of case experience indicate that four prerequisites lead to fast and effective change management:

• Pressure for change
• Clear, shared vision
• Capacity for change
• Actionable first steps

Prerequisite 1:
Pressure for Change
The most successful change programs begin when there is a compelling need or pressure that provides the incentive and motivation for change. In successful programs, the pressure for change comes from a rigorous analysis of customer needs, the company's competitive situation, its market position, financial performance, identification of the barriers to be overcome, and the potential payoffs. This analysis is then communicated dramatically, often in terms of organizational survival or continued effectiveness, to convince managers and employees alike that change is imperative and desirable and not a management ploy to downsize or restructure.

Prerequisite 2:
Clear, Shared Vision
Many change programs that fail are characterized by plenty of plans and directives but no clear, compelling statement that communicates the goal sought and the mandate for change. For example, in one major consumer products company, senior management set the goal of achieving competitive advantage from a finished goods logistics strategy. A newly recruited senior logistics manager, however, focused initial project activities on cost reduction within his function. This action combined with a lack of appreciation among sales managers of the role of logistics in creating profitable customer relationships, stalled the change process.

Prerequisite 3:
Capacity for Change
Despite great commitment, many change programs fail because the organization lacked the necessary capacity for change. Capacity is derived from redesigning the organizational structure, jobs, and performance measures to enable new performance and changed behaviors to occur; systematically and methodically training and developing staff to attain the required skills and behaviors in environment; and creating organizational slack or some temporary reduction in performance standards while the organization makes the transition.

High frustration and anxiety will occur if the capacity to undertake change does not exist due to lack of change management and technical skills, inappropriately defined accountabilities and responsibilities, or the pressure of existing business demands.

Prerequisite 4:
Actionable First Steps
Change programs can fail because they do not carry out the actions required to direct people's efforts. To achieve hoped-for improvements, the workforce must be skilled, motivated, and organized for environment. In addition, change leaders must focus on integrating change in the human, technology, and process areas. The following actionable first steps are essential:

1) Align culture with strategic response.
Supply chain organizations should be designed to meet the requirements of the market. That is, organizational design should start from the customer and move back toward the chief executive officer (CEO).

Despite the logic of the strategic organization design, change cannot occur without alignment with the corporate culture. Organizational culture means the shared values, beliefs, and norms in an organization that tend to evolve and persist over time and influence individual and group behavior patterns. Culture provides the internal fabric to deliver the business strategy. The following example underscores the point that corporate culture affects business strategy

A beverage company was attempting to introduce new processes and tools for the route managers to capture vital competitive information quickly. The company bought new personal computers, developed software, and trained managers, but many managers failed to use the tool. Why? The strong local ownership culture in each region rejected head-office involvement.

The larger and more diverse the organization, the more difficult it is to change the culture. This becomes a complicating factor of supply chain change, which requires an array of intra- and inter-organizational subcultures to align along the supply chain. Sometimes, an intermediary, such as another channel member, can help to bring different cultures into alignment.

For example, a wines and spirits wholesaler was used to align the diverse cultures of a large Australian beverage manufacturer with that of a major customer group of restaurants. The manufacturer was dominated by an administrative culture characterized by systems, quality, and consistency, and the restaurant group's driving culture gave primacy to productivity and action tempered by systems and stability. The restaurants wanted frequent deliveries of small, mixed cases and 30-day terms; the manufacturer was geared to weekly deliveries of pallet-size loads and seven-day terms. Rather than ask either party to undergo a significant cultural shift, a wines and spirits wholesaler acted as an adapter, to interface at one end with the manufacturer's systems and then reshape the offering to match the restaurants' system capabilities.

This solution shows that that strategic fit or alignment does not mean creating one culture across the supply chain. Rather, by recognizing culture mismatches, change leaders can effectively redesign the supply chain.

2) Appoint a process owner
Supply chain change is invariably about moving from a functional or subprocess orientation to one where the process covers all functions and subprocesses across the entire supply chain network. Subprocess owners will have neither the perspective nor the influence to deal with this new, all-encompassing environment. Therefore, the process of reaching consensus can be long and painful. Moreover, change across supply chain networks cannot occur without resolving boundary issues, resource prioritization conflicts, and questions about the perceived need for change.

Therefore, a single process owner is needed to coordinate the total supply chain. That owner will optimize performance for the total system not merely along functional lines. The process owner could be a supply chain director, who directly controls operations; a change manager who works to ensure integration among functions; or a supply chain planner, who establishes a forum for resolving supply chain issues.

3) Reshape performance measures
Changing performance measures is a powerful way to change behavior quickly. New performance measures signal to managers and workers alike what behaviors are and how they will be rewarded. As soon as new business targets are set, these should flow to organizational unit and work group and then down to performance goals for individual workers.

For example 2 supplier and distributor implementing a continuous replenishment program experienced initial distrust until they jointly mapped the process. Each then realized that financial incentives embedded in the old performance measures were encouraging uncooperative behavior. When the incentives were changed, the program progressed smoothly.

For reward or incentive programs to lead to change, they must result from informed consensus among key stakeholders, managers, and staff. There are four prerequisites for successful incentive systems:

• At the strategic-planning and resource-allocation stages, appropriate funds should be set aside to reward employees for supply chain improvements based on objective key performance measures.
• Team incentives should be paid for improved team performance, with the entire team sharing in those rewards.
• Strong disincentives should be used to emphasize that inappropriate behaviors will not be tolerated.
• Significant shifts in rewards are necessary to underpin behavioral change. Small rewards are a waste of money and work against serious realignment.

4) Develop and train the workforce
A comprehensive development and training program helps organizations change by helping people change their knowledge, abilities, skills, and attitudes. At first, training should focus on key individuals who have the power to change the organization. For example, logistics or supply chain professionals will be called on to make more rapid and complex decisions; to coordinate action across multiple products, geographic, functional, and organizational interfaces; and to interact with and manage teams. Therefore, these functional experts need training in communication, organizational behavior, and leadership.

Of course, all affected employees will require some form of training. Supply chain change often results in process redesign that requires workers to carry out new tasks and interact with different people.

5) Communicate and demonstrate top-management commitment
When an organization strives to implement large scale change, management must communicate to organizational members the why, what, when, and how of the change program. Communications must be honest and relentless. Actions and words of the CEO and other top managers will do much to reshape the culture and propel the organization towards its goals.

Most important, managers at all levels must act and behave in accordance with models. For example, a manager who encourages her direct reports to accept new responsibilities must not ignore them herself. When the leadership team demonstrates commitment to change by personally adopting the change, the change is more likely to succeed.

6) Involve stakeholders and gain commitment to change
Resistance to change is a natural human response. Meaningful stakeholder involvement is the most successful way to overcome this resistance. But many change programs have failed because stakeholders were not sufficiently involved in defining the changes, as the following case shows.

The Commitment to Change:
One supply chain project in a major customer goods company stopped before any benefits could be realized. In retrospect, the project failed because local managers were not committed to the change; a policy of secrecy suppressed, rather than overcame resistance; a short-term focus resulted in lack of involvement; and high profitability meant that there was no clear imperative for change. At first, a strong sponsor overcame these problems. When he left the company, the failure to involve stakeholders overwhelmed the program.

By identifying all stakeholders, change leaders ensure that the fears, expectations, and needs of every person who could derail the change process have been addressed.

7) Implement a system to track benefits
By implementing a system to monitor continuously the success of the supply chain change program, organizations accomplish the following:

• Ensure that progress to date and planned actions will still achieve the hoped-for business benefits.
• Provide early feedback to stakeholders that will reassure those funding the project, motivate those engaged in the program, and quiet the skeptics and cynics who may otherwise undermine change.
• Provide feedback to senior managers so they may refine plans.

When the benefits-tracking is linked to the budgeting process, the targets of operational managers will reflect business benefits. In addition, change benefits should be linked to product-pricing and customer-profitability monitoring systems. Strategic change will deliver improved margins by affecting both revenue and costs. Therefore, actively managing pricing for new services and key customer segments is essential to achieving the expected benefits.

This is particularly important in supply chain change because, despite all the focus on partnerships and win-win relationships, the benefits of change are rarely distributed evenly across the companies participating in the change process.

8) Communicate with all stakeholders
Rumor and distrust can undermine any change program. Communications, particularly from top management, must be a continuous and honest, so that people understand what is required. In supply chain change, communication also is required across company boundaries to suppliers, customers, and other organizations in the chain. In addition, for publicly traded companies, the investment community must be informed.

9) Create an integration map
The complexity of supply chain change can lead to confusion and failure. Therefore, it is essential to create a map of supply-chain-wide initiatives and compare these with goals, performance measures, and resources. An integration map can identify the array of change initiatives and programs, reveal conflicting time and resource priorities, and point out change goals that have not been addressed. The map is useful for scheduling and setting priorities. Since concurrent initiatives can lead to confusion, an integrated approach to change is essential.

Managing Change is Managing People
Supply chain change is essential and everywhere. Current best practices will be supplanted by new ideas about supply chain excellence, as existing paradigms are tested and retested in the search for excellence. For supply chain managers, however, technology and functional expertise are not enough to effect sustainable change.

People provide the route to fast and effective management to change. To achieve change, people must know what to do, why, and how; they must have the resources to make change; they must be motivated and guided. The supply chain change master of the future will be able to manage not only costs, time, benefits, and quality but also stakeholders and their emotions, team building, communication, commitment building, risk management, and people development.

This article is an excerpt from "Supply Chain Management: Best Practices in Supply Chain Management", John Gattorna Ed, 1998