REPORT
NOVEMBER 2015
SUPPLY CHAIN ORGANISATIONAL DESIGN
STRUCTURE FOR BALANCE
Author
Kevin O’Marah
Chief Content Officer, SCM World
Kevin leads SCM World’s Content team and cutting-edge, practitioner-driven supply chain
research. Kevin also co-chairs the SCM World Executive Advisory Board, a group of 15
C-level practitioners from the world’s leading brands dedicated to improving the practice
of supply chain management.
A research fellow at the Stanford Graduate School of Business, he helps to shape the
direction of supply chain teaching for the next generation of business leaders. Prior to
SCM World, he served as Group Vice President for Supply Chain at Gartner following the
2009 acquisition of AMR Research, where he was Chief Strategy Officer. In his 10-year
career at AMR, he created the Supply Chain Top 25, wrote over 400 published articles
and reports, and led a six-year dialogue with business leaders and luminaries such as Bill
Clinton, Colin Powell, Michael Eisner and T. Boone Pickens.
Kevin holds a Bachelor of Arts in Economics from Boston College, a Master of Science
in Industrial Relations from Oxford University and an MBA from Stanford University. He is
based in Boston and travels to London frequently.
This document is the result of primary research performed by SCM World. SCM World’s methodologies provide for
objective, fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted,
the entire contents of this publication are copyrighted by SCM World and may not be reproduced, distributed, archived or
transmitted in any form or by any means without prior written consent by SCM World.
© 2015 SCM World. All rights reserved.
CONTENTS
EXECUTIVE SUMMARY
4
INTRODUCTION5
BALANCED EXCELLENCE AND THE QUEST FOR AGILITY
6
TRENDS IMPACTING SUPPLY CHAIN ORGANISATION DESIGN
13
ORGANISATION DESIGN AND THE IMPORTANCE OF LEVERAGE
15
CONCLUSIONS & RECOMMENDATIONS
17
REFERENCES
18
EXECUTIVE
SUMMARY
Supply chain organisational design must enable a
uniquely cross-functional performance that balances
high customer service with low costs. Centralisation
tends to favour standardisation and cost control,
but traditionally at the expense of customer-specific
needs. Decentralisation tends to allow customisation
and a higher level of personal customer service, but
usually at a higher cost to serve.
Designing a supply chain organisation and reporting
lines to foster the right human incentives and
accountabilities depends on deciding where process
standardisation can be forced and where delegated
authority pays the most. Agile organisations need to
be able to tilt effortlessly between the two, selectively
using standardisation to actually enable agility.
A recent SCM World survey of over 1,000 supply chain
professionals found that manufacturing is the most
decentrally managed function and procurement –
along with strategy, human resources and information
technology – the most centrally managed. Consumer
packaged goods, hi-tech, retail and healthcare &
pharmaceutical firms tend to be the most centralised,
with industrial and chemicals firms the most
decentralised, particularly in terms of supply/demand
planning, production and logistics.
Our survey data shows that while matrixed or hybrid
organisational structures are less common than
fully centralised or decentralised models, larger
companies are more likely to embrace them. In the
case of procurement, there is evidence that more
mature organisations have already adopted a centreled approach that takes advantage of leverage
opportunities globally, while retaining flexibility at a
national or regional level. More broadly, centres of
excellence are used by many companies to enforce
standards for process design and information
management while still allowing for localised execution.
Supply chain leaders should seek a structure that
enables agility and leverage with process and
information standards. In general terms, this means:
• Centralising procurement and moving it closer to
the CEO.
• Decentralising manufacturing and logistics,
and using platforming principles to locate final
assembly near to the source of demand.
• Using centres of excellence and/or matrix
structures to get the right balance between cost
and service.
Technology and economic trends seem to be leading
many companies to rethink their organisational
structures in favour of greater decentralisation. Big
data analytics, the internet of things, 3D printing and
demand-sensing technologies are making it possible
to localise both demand planning and production in
a more precise way. The growth of consumption in
emerging markets is also pushing manufacturers to
localise both products and processes, and locate
supply chain functions closer to the customer, even as
the complexity of global trade rules is pushing in the
opposite direction.
4
Supply Chain Organisational Design Structure for Balance
INTRODUCTION
Senior executives with supply chain responsibility
group that took product to market. The mandate for
design for this part of the business is all about cross-
costs. The organisation design associated with this
come fairly quickly to the conclusion that organisation
functional thinking. The former CFO of UK retailer
Marks & Spencer, whose leadership remit included
not only finance but also IT and supply chain, said
that cross-functionality means “understanding
everything from product creation to the shelf and all
purchasing, production and shipping was simple: cut
mandate rolled up as a series of cost centres that
collectively comprised cost of goods sold and was best
managed with annual budgeting and constant pressure
on expenses and asset utilisation.
the interdependencies”.1
By the early 2000s this classical approach had
Unlike the role clarity associated with sales
innovation and skimp on customer service. Why, for
organisations, supply chain cannot really be managed
with a central metric of success and a clear hierarchy
rolling up to the top. Instead, the ideal organisation
is one with a healthy dynamic tension between the
customer-facing desire to please and the investorfacing imperative to keep costs down.
SUPPLY CHAIN IS NOT A COST
CENTRE
foundered on the incentives it created to resist product
instance, help R&D to introduce a new product if it
means buying small amounts of special materials or
changing over plant equipment when these things will
certainly add cost? Why ship a partial truckload to a
customer if this means raising average freight costs?
Cost-only thinking was found to be an unacceptable
basis for organisation design.
A generation ago most big businesses were built
SUPPLY CHAIN IS NOT A CUSTOMER
SERVICE CENTRE
embodied the commitment of capital and a sales
The “customer is king” mentality that swept business
1 | Balancing cost and service
response to blind cost cutting, but unchecked it has
around some kind of factory infrastructure that
thinking from the 1990s seemed like an appropriate
the potential to hurt the business in a very different
way. Why not air freight when the customer demands
immediate delivery? Why not agree to a customised
configuration built to order if the customer needs it?
Service-only thinking is just as flawed as cost-only
thinking.
The recipe clearly calls for some kind of balance
COST
is king
CUSTOMER
is king
between cost and service, and as Marks & Spencer’s
CFO said of the problem, a level of “cross-business
awareness”. From an organisational structure
perspective then, the challenge is designing a series
of reporting lines, metric scorecards and co-operative
business processes that span other functions.
Source: SCM World
November 2015
5
BALANCED EXCELLENCE AND
THE QUEST FOR AGILITY
Central to the notion of a well-structured supply chain
to 1,000 practitioners across industries and around the
able to make the customer happy enough to keep
that which might have made sense in the mid-to-late
are tight enough to deliver profits. On the cost side,
of the universe, are more decentrally managed than
world.2 The data points to a very different picture from
organisation is that it will always and everywhere be
20th century. Factories, far from being at the centre
revenue coming, but at the same time ensure costs
any other part of the end-to-end supply chain, while
standardisation of everything from materials to order
procurement has graduated from a distributed service
management processes helps with margins, while on
buying parts and materials for plants to the most
the revenue side, customisation sells.
centrally managed function of all.
Agility is about having the best of both worlds. Supply
chain organisation design generally tilts towards more
The share of respondents reporting that their functions
cost control is in focus, and decentralisation when
structure is relatively small overall, with none occurring
are managed with some kind of matrix or dual reporting
centralised reporting lines when standardisation and
more than 24% of the time. The implication is that clarity
localisation and customer satisfaction is the goal.
in reporting lines is preferred over split accountabilities.
SUPPLY CHAIN ORGANISATIONAL
DESIGN AS IS
INDUSTRY VARIATIONS
To get a picture of how the elements of supply chain
The differences in organisational design by industry
organisations are managed today we fielded a survey
are less pronounced than one might think given the
wide variety of business models. Human resources,
strategy and IT are all usually managed from the
2 | Supply chain organisational structure
centre, although many rely on some amount of matrixed
Which structure most accurately describes each of your supply
chain functions?
Supply chain strategy
Procurement/sourcing
Supply chain IT
Supply planning
12
69
64
64
53
46
Supply chain HR
44
Distribution/Logistics
43
Manufacturing
35
11
23
14
16
31
6
19
4
prefer decentralisation. This is especially true for the
3
Don’t know
Source: SCM World Future of Supply Chain survey 2015
of manufacturing, logistics and demand planning
with a pronounced tendency among heavier, more
21
Dual reporting
or matrixed
Significant differences are notable in the organisation
3
33
Decentralised
are logical to centralise.
20
9
18
core disciplines (plan, source, make, deliver) and thus
2
24
37
like asset intensity, vertical integration and margins than
4
23
Centralised
6
however, these three are all less influenced by things
15
24
Demand planning
management for HR in particular. As support functions,
10
% of respondents
n=1,008
vertically integrated and plant-centric businesses to
organisational oversight of manufacturing, which for
chemicals, food & beverage, industrial and utilities
& energy companies are more often managed in the
business unit or geography than centrally.
For all industries, however, procurement is most
commonly managed centrally. Research on trends
in procurement best practices shows a widespread
movement toward centrally managed or at least centreled organisation designs.
Supply Chain Organisational Design Structure for Balance
The takeaway from looking at supply chain
The high degree of decentralisation seen in
principles relating to process standardisation, reporting
manufacturing illustrates how common it is for CPG
organisational structure by industry is that universal
lines, performance metrics and incentives seem to
overwhelm the special considerations of any industry.
CONSUMER PACKAGED GOODS
demand planning, logistics and, to a lesser extent,
companies to have a customer service and logistics
function. Such a function often reports hard line into
commercial teams within business units and is tasked
first and foremost with order fulfilment performance
and secondarily with cost containment (see Colgate-
The consumer packaged goods industry is among
Palmolive company spotlight).
the most mature in terms of supply chain’s position
as a critical strategic element of the business. The
HI-TECH
common here than in most industries, in part because
Hi-tech manufacturers are another group with a
service level have been driven especially intensively
organisationally looks similar to what we see in CPG
existence of a formal chief supply chain officer is more
the combined pressures of cost containment and
by powerful retailers over the past 20 years. Also
mature view of supply chain. Much of the profile
with the exception of a higher incidence of matrix
management for demand planning and a somewhat
important is the frequent re-invention of brands
and formulations, which force CPG companies to
constantly revisit their structure in search of better end-
higher degree of centralisation in procurement.
to-end supply chain performance.
3 | CPG organisational structure
Which description most accurately describes each of your supply
chain functions?
Strategy
81
IT
75
Procurement
Manufacturing
Logistics
3
66
43
Demand planning
42
Which description most accurately describes each of your supply
chain functions?
Procurement
Strategy
Supply planning
14
29
19
18
27
20
52
45
13
7
70
Supply planning
HR
6
4 | Hi-tech organisational structure
8
17
74
10
15
63
IT
17
61
Manufacturing
19
75
22
56
36
21
39
19
Logistics
HR
17
29
Demand planning
36
20
15
49
26
25
48
26
26
44
27
29
n=95
Centralised
Decentralised
n=144
Matrix
% of respondents
Source: SCM World Future of Supply Chain survey 2015
November 2015
7
COMPANY SPOTLIGHT
Colgate-Palmolive: globally
aligned and locally connected
Organisation design is usually a journey with transitions driven
across the globe allows for maximum leverage in supply chain
by business strategy, technology or other factors. Colgate-
but with enough business-specific agility to react quickly to
Palmolive is a consumer packaged goods company with the
changing conditions.
majority of its sales coming from outside the United States where
it is headquartered. The journey for Colgate organisationally
Dotted-line relationship
started before the 1990s with a local supply chain structure
using primarily country-based manufacturing, sourcing and
The final ingredient in this globally aligned, locally connected
distribution. This was a logical approach for most pre-internet
supply chain organisation is a dotted-line relationship to the
companies selling fast-moving consumer goods like toothpaste,
customer service and logistics function, which delivers to
soap and household cleaners.
retailers and other customer channels. These functions report
directly to the divisional business leaders who are organised
Between 1990 and 2005 the company moved to a regionalised
geographically and focus on optimal customer service metrics,
organisation structure with focused factories and regional
which vary significantly according to local market conditions (eg,
leadership. This created opportunities for more leverage in
dense urban developing country retailers versus large format
sourcing, production and logistics. For the past 10 years,
superstores, and highly developed transport infrastructure
however, the structure has moved to a global leadership design
versus poor roads).
with centralised support functions including procurement,
strategy and information systems, as well as environmental
The pieces are held together by a strict financial scorecard
health & safety, all reporting directly to the corporate head of
that tracks gross margin and overhead expense as a source
global supply chain.
of funding for advertising and promotion to fund growth and
operating profits. The management of trade-offs in the business
A key part of this structure is also the global category supply
relies on a planning process in which commercial teams in the
chain teams, which each manage plant operations, direct
divisions bring 60-day and six-month forecasts to a monthly
material sourcing, packaging and engineering for clusters of
S&OP process with category supply chain teams.
common products grouped by category. These categories
include personal care, oral care, home care, toothbrushes
The net effect is a highly leveraged global supply chain structure
and pet nutrition. The commonality of materials, manufacturing
that remains sensitive and responsive to local market and
technologies and demand patterns within categories but
customer requirements.3
Supply chain finance
Supply chain HR & labour relations
Global supply chain
Mike Corbo
Global support functions
Global procurement
Global CS&L
Global sustainability & EOHS
GSC strategy & systems
Global project management
8
Divisions
Divisional customer service
Category supply chains
Global & regional teams including:
• Network operations
• Technical/engineering
• Quality
• Procurement
• Packaging
• Finance
North America customer service
Europe customer service
Latin America customer service
Greater Asia customer service
Pet nutrition customer service
Africa/Eurasia customer service
Supply Chain Organisational Design Structure for Balance
The reason appears to be based on hi-tech’s heavier
like GlaxoSmithKline and Johnson & Johnson have
of substitutions in fulfilment to customers, as well as
possible that lessons from hi-tech apply as companies
reliance on contract manufacturing and the viability
common componentry used in different products.
Sales and operations planning processes in this sector
are more often cross-business unit as well as cross-
functional, because of the benefits of sharing supply
resources in the short term to address demand volatility.
HEALTHCARE &
PHARMACEUTICALS
typical high cost of goods sold and asset intensity of
of centralisation.
One explanation for this may be a desire to replicate
established best practices. Many pharma companies
5 | Healthcare & pharma organisational structure
Which description most accurately describes each of your supply
chain functions?
79
15
57
54
50
Logistics
7
64
Demand planning
Manufacturing
9
69
HR
47
46
Industrial supply chain organisations are among the
decentralised in this sector than most others. The
consumer products and hi-tech in terms of the degree
Supply planning
INDUSTRIAL
than centrally. Supply planning is also more commonly
chain. Organisational structures look similar to
IT
drive growth.
managing manufacturing locally or in business units
relatively new to the idea of an end-to-end supply
Procurement
in this sector bet heavily on new product innovation to
most heavily decentralised, with nearly twice as many
The healthcare and pharmaceuticals industries are
Strategy
sister companies that are large CPG players. It is also
19
18
12
24
functions like strategy, HR and IT are also somewhat
more likely to be decentralised in these companies.
6 | Industrial organisational structure
Which description most accurately describes each of your supply
chain functions?
Strategy
66
17
64
24
52
Logistics
HR
17
21
31
46
28
26
46
26
28
40
Supply planning
39
Manufacturing
23
17
15
Demand planning
18
31
makes central management difficult. Key enabling
Procurement
21
24
35
as well as the variety of manufacturing processes,
IT
28
26
businesses like Eaton, General Electric and Danaher,
30
27
33
29
32
48
22
n=74
Centralised
Decentralised
n=135
Matrix
% of respondents
Source: SCM World Future of Supply Chain survey 2015
November 2015
9
FOOD & BEVERAGE
CHEMICALS
As a sort of hybrid between the asset-intensive
The chemicals sector is more decentralised than any
and the brand-driven businesses in CPG, food &
locally rather than centrally. The extreme example may
process manufacturers in the chemicals sector
other, with manufacturing twice as likely to be managed
beverage companies display characteristics of both
in their organisational design. As a heavily plant-
centric supply network, many companies find that
decentralised structures work well to handle extensive
on-the-ground personnel issues, as well as local
logistics. Procurement, however, is highly centralised
with buying of both capital equipment and direct
materials best managed at a global commodity level.
be BASF’s verbund system of site management. Each
of its seven mega-plants around the world is managed
as a vertically integrated system of inbound materials
and equipment, conversion processes and outbound
distribution. Centrally managed IT and business
processes, including things like planning and HR,
provide a discipline for consistency, but decentralised
management of on-the-ground execution is essential for
optimum site performance.
The logic is not uncommon, particularly in larger
petrochemical complexes. Procurement, however, is
still highly centralised for reasons that are similar to
those in food & beverage.
7 | Food & beverage organisational structure
Which description most accurately describes each of your supply
chain functions?
Procurement
74
Strategy
IT
Supply planning
3
12
17
69
15
16
52
24
46
HR
Logistics
41
37
Manufacturing
31
32
11
71
10
58
Logistics
24
39
37
30
47
Manufacturing
28
47
n=115
Centralised
Decentralised
16
26
18
47
38
24
7
13
64
Demand planning
25
45
Strategy
18
Supply planning
27
38
75
Procurement
HR
24
43
Which description most accurately describes each of your supply
chain functions?
IT
23
71
Demand planning
8 | Chemicals organisational structure
14
25
23
25
n=82
Matrix
% of respondents
Source: SCM World Future of Supply Chain survey 2015
10
Supply Chain Organisational Design Structure for Balance
RETAIL
LOGISTICS & DISTRIBUTION
Many retailers’ relationship with supply chain is limited
Logistics and distribution supply chain organisations,
Organisations in this sector are more consistently
sourcing functions remotely, since many are essentially
to merchandise planning, sourcing and logistics.
centralised in supply planning and logistics
like those in retail, relate to manufacturing and
working only to move product made by others.
management than any other.
In particular this means logistics is decentralised
to business units, enabling more direct customer
The buying leverage and, in the case of logistics,
influence over operations.
operational advantages of highly centralised
management helps to protect margins and assist
Strategy and IT are relatively highly centralised,
discovered that e-commerce strategies are better
margins, and therefore put a premium on standardised
with in-stock performance. Many retailers have also
possibly because of the need to survive on thin
supported with a central omnichannel organisation for
both buying and handling merchandise.
9 | Retail organisational structure
Which description most accurately describes each of your supply
chain functions?
Strategy
72
Supply planning
HR
Demand planning
18
68
23
9
68
23
9
65
IT
24
65
Procurement
Logistics
20
61
15
53
Manufacturing
34
10
36
47
11
15
approaches to new service offerings.
10 | Logistics & distribution organisational structure
Which description most accurately describes each of your supply
chain functions?
Strategy
78
IT
78
Supply planning
Demand planning
Procurement
HR
24
11
Logistics
6
16
26
13
60
27
13
58
18
52
24
26
39
22
47
37
14
43
20
n=47
Centralised
Decentralised
n=62
Matrix
% of respondents
Source: SCM World Future of Supply Chain survey 2015
November 2015
8
61
Manufacturing
19
14
11
UTILITIES & ENERGY
Utilities and energy firms, like chemicals, are capital
11 | Utilities & energy organisational structure
Which description most accurately describes each of your supply
chain functions?
intensive and site specific. They are much less likely
IT
higher need for localised purchasing requirements for
Strategy
to centralise procurement than most and have a
mission-critical MRO items. Many in this sector are also
operating in far-flung geographies with less tolerance
for process standardisation if it comes at the expense
of operating uptime in the field.
HR
74
11
73
16
61
Supply planning
18
58
Procurement
55
16
52
33
Centralised
21
14
29
34
49
Manufacturing
11
28
Demand planning
Logistics
15
14
42
51
Decentralised
Matrix
9
16
% of respondents
n=70
Source: SCM World Future of Supply Chain survey 2015
12
Supply Chain Organisational Design Structure for Balance
TRENDS IMPACTING SUPPLY
CHAIN ORGANISATION DESIGN
The changes in supply chain as a business function
to demand. Micro-manufacturing fits better near the
and global trade. In the late 20th century this meant
increasingly decentralised going forwards.
derive in part from changes in the role of technology
market or customer and therefore looks likely to be
fragmentation of functions that for decades had been
plant-centric. The arrival of information systems like
These production technology trends are coupled with
flung manufacturing locations and the outsourcing of
This includes internet of things unitary awareness
ERP connecting corporate HQ with geographically far-
a dramatic rise in demand-sensing technologies.
on shelves, cases and items, and big data analytics
manufacturing to low-cost countries opened the door
applied to everything from social media feeds to GPS
to centralisation.
data. These technologies are enabling more precise
In recent years, however, technology and global
and meaningful demand planning at an increasingly
trade trends seem to be leading many organisations
local level. Companies as diverse as Macy’s, BMW and
to rethink their structures, with an increasingly
Cisco are exploiting these technologies to better align
hybrid structure emerging as best practice. In
production with purchases.
this new model, technology enables cost-effective
localised manufacturing, which in turn encourages
Changes in global trade and demographics are also
manufacturing, including advanced robotics, 3D
emerging markets means that low-cost country
having an effect. Growing middle classes in many
decentralisation. Technologies supporting smart
sourcing is no longer the chief reason that supply
printing and sensor-enabled production, facilitate
chain organisations are extended globally. Selling into
running ever smaller batches of product in response
12 | Disruptive technologies
‘Disruptive and important’ technologies with respect to supply chain strategy
77
64
Big data
analytics
71
49
Digital supply
chain
64
45
Internet of
things
56
33
38
Cloud
computing
Advanced
robotics
2015
* Not included in 2014
Source: SCM World Future of Supply Chain survey 2015
November 2015
27
36
Machine
learning*
2014
31
20
3D printing
17
11
Drones/
self-guided
vehicles
16
8
Uberisation
% of respondents
n=1,018
13
these new markets requires substantial localisation of
13 | Process pros and cons
How do you feel about process in enabling a high-performance
supply chain organisation?
products and processes. This means that localisation of
functions closest to the customer can be advantageous,
2
as drinks maker Diageo has shown with its micromanufacturing facilities in some African markets.
12
27
39
In contrast, the increasing complexity and potential
cash saving attached to export/import regulation,
preferential trade agreements and taxation benefits
86
favour supply chains that can manage such complexity
34
centrally. General Electric, for instance, has moved to
standardise and centralise global trade management
across radically different business units in an effort to
Process standardisation
is essential
optimise tax, tariff and logistics costs.
PROCESS STANDARDISATION
AND AGILITY
Agree
Neutral
Process standardisation
constrains agility
Disagree
% of respondents
n=1,018
Source: SCM World Future of Supply Chain survey 2015
Agility can be thought of as the ability to change
The implication is that effective supply chain
chain organisational design is, in some respects, a
standardisation to actually enable agility. This is the
direction quickly without losing momentum. Supply
puzzle focused on this goal. Standardisation facilitates
scale, which drives down cost but often at the expense
of being able to customise work and output.
Specific strategies in regular use today to enhance
agility include segmented supply chains (half of all
companies use this approach), product platforming
(75%) and cost-to-serve analysis (57%). Each
approach is an attempt to use standardisation
selectively in supply chain design while offering
organisation design boils down to selectively using
underlying principle common to segmentation and
platforming as strategic tools.
Among the best examples of these strategies is Clorox.4
A centrally managed global supply chain organisation
works through four distinct segments to find the right
balance point between cost and service for different
classes of product/customer requirements (see Figure
14). Process standardisation done right improves agility.
choices in the face of variable demand.
Designing a supply chain organisation to foster the
14 | Four value chain types at Clorox
right human incentives and accountabilities depends
on deciding where process standardisation can
be forced and where delegated authority pays the
most. Our survey respondents were asked about
the relationship between process standardisation
and agility, and while nearly all agreed that
“standardisation is essential to a high-performing
supply chain”, few (27%) felt that standardisation
constrains agility.
14
Speed
Service
Cost
New
Value add
Base - Flexible
Base - Low cost
Best
Better
Good
Source: The Clorox Company
Supply Chain Organisational Design Structure for Balance
ORGANISATION DESIGN AND THE
IMPORTANCE OF LEVERAGE
Leverage in supply chain design depends on
planning, procurement is even more centralised than
standardisation, scale and therefore cost savings.
for the future of supply chain is that an enlightened
what functions are centralised in order to force
We took the ratio of the percentage of respondents
saying that their supply chain functions were managed
centrally over the percentage saying decentralised
strategy or information technology. The implication
procurement strategy can serve as a platform for
growth and innovation.
to gauge where leverage was highest. Procurement,
Centralised procurement has obvious natural benefits
corporate core. Manufacturing, in contrast, is furthest
buying power upstream. Even the most basic
even more than strategy, IT and HR, is closest to the
from the centre.
THE NEED FOR LEVERAGE AND THE
RISE OF PROCUREMENT
Procurement holds the key to strategic leverage in
the end-to-end supply chain. While manufacturing is
more decentralised than even distribution or demand
associated with consolidated spend and therefore
sourcing strategies depend on developing category
management expertise to ensure lowest cost. Knockon benefits include standardisation of material and
process specifications, which should improve quality
as well as working capital efficiency.
Current trends point to many companies continuing
to centralise their procurement, whether of production
materials or indirect products and services. This may
be a necessary step in getting sufficient control over
external costs and maximising leverage enterprise
15 | Functional variations in organisation structure
wide. At the same time, there is also evidence that
Ratio of centralised to decentralised
Procurement
6.1
Strategy
5.7
IT
4.4
Supply planning
2.2
HR
2.0
Demand planning
1.4
Logistics
1.3
Manufacturing
1.0
Source: SCM World Future of Supply Chain survey 2015
more mature procurement organisations have already
begun to decentralise their global activities into more
of a centre-led structure. Technologies like big data
analytics, as mentioned earlier in relation to planning
and manufacturing, are also starting to make hybrid
procurement organisations a more attractive and
effective proposition.
DON’T FEAR THE MATRIX
n=1,008
Dotted-line management structures are often derided
as confusing and bureaucratic. Our survey data
does show that matrixed management structures
are less common than those that are centralised or
decentralised, but when looked at by company size
there is a clear pattern for larger companies to use
matrix structures more. The implication is that bigger
businesses are able to achieve leverage with dual
reporting lines.
The same profile applies not only to procurement
(Figure 16), but also to distribution, supply planning,
November 2015
15
demand planning and HR. Companies with annual
sales of $10-25 billion are the most likely to use matrix
16 | Procurement managed in dual reporting or matrixed
structures
By company size (annual sales)
structures to manage their supply chain organisations.
$1-50m
11
derive from enforcing standards for process design
$50-500m
17
$500m-1bn
while still allowing localised execution. This is often
22
$1-5bn
26
$5-10bn
28
$10-25bn
29
$25bn plus
21
This works because of the value many are able to
and information management, which provide leverage
managed in some kind of centre of excellence (CoE)
structure that reports directly to a CEO, CFO or COO.
About two-thirds of all companies have some kind of
CoE in place, with larger units comprising 30-60 full-
% of respondents
n=232
time people and smaller ones typically 5-10 FTEs.
Source: SCM World Future of Supply Chain survey 2015
17 | Centres of excellence and organisation design
Centralisation
Matrix
Decentralisation
Standardisation
Centre of excellence
Customisation
Scale
Process + information = leverage
Personalisation
Cost reduction
Agility & leverage
Service level increase
Source: SCM World
16
Supply Chain Organisational Design Structure for Balance
CONCLUSIONS &
RECOMMENDATIONS
Supply chain organisational design must enable a
uniquely cross-functional performance that balances
high customer service and low costs. Centralisation
tends to favour standardisation and cost control,
but traditionally at the expense of customer-specific
needs. Decentralisation tends to allow customisation
and a higher level of personal customer service, but
usually at a higher cost to serve.
Rather than swing back and forth structurally in
response to short-term pressures from either direction,
supply chain leaders should seek a structure that
enables agility and leverage with process and
information standards.
To do this:
• Centralise procurement and move it ever closer
to the CEO. For many this takes the form of a
centre-led procurement organisation in which
central leadership sets long-term strategic direction
but allows local execution within standards. In the
long run this should create business platforms
• Decentralise manufacturing and logistics. To the
extent that products can make use of platforming
principles, complexity can and should be baked
into production equipment and sub-assembly
designs to allow finished goods manufacturing
to happen closest to demand. Business unit and
geography-specific management of manufacturing
and logistics creates a competitive advantage
in market. Standardisation, however, is critical
to avoid blowing up cost to serve. Central
procurement can and should manage to this end.
• Use centre of excellence and/or matrix
structures to get the best of both worlds.
Shared accountabilities are usually a problem in
organisation design, but for supply chain they
are often essential. By focusing on metrics like
operating margin, supply chain professionals
are naturally drawn to seek a balance between
customer service and cost. Matrix structures, and
even more so centres of excellence, are well suited
to this kind of split loyalty.
inclusive of critical supply relationships, intellectual
property assets and product/process platforms that
enable low-cost customisation.
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17
REFERENCES
1
SCM World webinar, “The CFO’s perspective on achieving cross-functionality”, Alan Stewart, former CFO, Marks & Spencer, 31 January 2012.
2
3
Future of Supply Chain Report 2015, SCM World, September 2015.
SCM World webinar, “Redesigning the supply chain organisation to drive business strategy”, Mike Corbo, Colgate-Palmolive, 26 May 2015.
4
SCM World webinar, “Supply chain segmentation: mastering complexity”, Mark Hersh, The Clorox Company,
3 April 2014.
18
Supply Chain Organisational Design Structure for Balance
ABOUT SCM WORLD
SCM World is the cross-industry learning community powered by the world’s most influential supply chain practitioners.
We help senior executives share best practice insights in order to shape the future of supply chain.
As a member of the SCM World community, you have access to our predictive, groundbreaking research, which is
focused on driving innovation in supply chain. Our agenda is set by an advisory board of the world’s top supply chain
leaders and the world’s leading business schools. We also have our own team of expert researchers who are committed
to providing insights into important trends affecting the profession.
We are passionate about making a difference to critical world issues like the distribution of food, delivery of healthcare,
and environmental sustainability. Our mission is to help companies address these challenges within their supply chains.
We provide you with a powerful external perspective on supply chain through a combination of exclusive peer
connections, practitioner-driven content and predictive research. Members of our community include Unilever, Amazon,
Nike, Caterpillar, Cisco, Chevron, Dell, Nestlé and General Mills.
For more information about our research programme, contact:
Geraint John
Senior Vice President, Research
geraint.john@scmworld.com
2 London Bridge, London
51 Melcher Street, Boston,
+44 (0) 20 3747 6200
+1 617 520 4940
SE1 9RA, United Kingdom
MA 02210, USA
scmworld.com
November 2015
19
2014 - 2015 REPORTS
December 2014
December 2014
January 2015
February 2015
March 2015
April 2015
May 2015
June 2015
DIGITAL SUPPLY CHAIN
AN INTRODUCTION
JULY 2015
July 2015
July 2015
July 2015
August 2015
August 2015
September 2015
October 2015
November 2015