The Bow Tie and Diamond Case Study
 The bow tie and the diamond are graphic depictions of two
different ways of doing business
 The bow tie represents a transactional approach with one point
of contact between the company and a stakeholder
 This approach optimizes at the point of the transaction
 Goals are achieved within a functional silo
 This approach is traditional
 The diamond represents a systems or team approach with many
points of contact between the company and stakeholder
 This approach optimizes across the many points of contact
within the relationship for a particular series of transactions or a
set of transaction types
 Optimization considers all dimensions surrounding the
transaction, defined as the relationship
 Optimization is multi- and cross-functional
 Our examples focus on suppliers and employees
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Traditional Supplier Interface
Company Team
Supplier Team
Buyer
Sales Rep
The traditional relationship between company and supplier looks like a bow tie, with the company’s buyer and the supplier’s salesperson
at the midpoint of the tie – only communicating directly with each other across the companies. Each of the “opponents” are attempting to
reach the best “deal” they can, despite the transaction’s impact on the rest of the organization. For example, the supplier might have a 12pack on special and the company’s customers’ only order 3-packs. The buyer gets a great price per unit, but the warehouse is left the task
of repacking the goods into 3-packs.
Looking at another dimension of the same transaction, the company’s accounts payable department spends a significant amount of time
reconciling receiving reports to purchase orders and to invoices because of incomplete information. Because of the lack of the “right”
information, the accounts payable detail does not reconcile to the total amounts due as claimed by the supplier. This results in the
payments, sent by the company to the supplier, having incomplete cash remittance information. This in turn results in the supplier’s
accounts receivable department expending additional time reconciling the company’s account.
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Enhanced Supplier Interface
Supplier Team
--- IT ---
Company Team
- Transportation -
-- Product
Development --
- Sales/Purchasing -- Accounting --
-- Warehouse --
A different approach is to turn the bow tie inside out so the interaction with the supplier looks more like a diamond, with a number of points of
contact between the companies. There are two benefits with this approach. First, the buying and selling processes become multi-functional.
This affords visibility to the impact of buying decisions across the company. In our previous example of the 12-pack special, the receiving
department would be able to provide input on the disruption and additional cost required to repackage the goods. This would give purchasing a
more holistic context for the buy decision on the special.
The second benefit with this approach is the opening of direct communication lines across the points of contact between the supplier and
company. In our previous example, additional man-hours are being incurred in the account reconciliation process because the accounts payable
department of the company does not have the “right” information. This lack of the right information is driving behavior in the company, which
in turn causes additional man-hours to be incurred in the supplier’s accounts receivable department. Opening the communications lines across
the companies could eliminate this additional work for both parties.
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The Diamond and Suppliers
The Problem
A consumer products company owed a large amount to a key supplier, and it was
significantly past due. The reason the large balance was in arrears was the numerous
unreconciled errors in the account transactions detail, which were attributed to
perceived invoicing problems at the supplier. The situation had escalated to the point
the supplier slowed its shipments to the company and was threatening to stop all
shipments until full payment was received.
The Cause
Both the VP of Sales and the VP of Purchasing were feeling the product squeeze
from the supplier and decided to visit the Accounts Payable Manager and Controller.
What they heard from the Accounts Payable Manager was that the supplier was not
providing the “right” information to support the invoiced amounts. And, no
payments would be made of balances not fully supported.
The Solution
Internal and External Events - The Controller took the lead. He arranged a meeting,
with the assistance of the VPs of Purchasing and Distribution, with the buyer
assigned to the product line provided by the supplier and with the manager of the
Receiving Department. They found that part of the missing “right” information was
in the Receiving Department, but the rest of it was with the supplier. (Changes were
made in the internal business processes to ensure the right information in house
would start flowing to Accounts Payable.) Next, the Controller called the Controller
at the supplier. A conference was set for the appropriate Credit and Accounts
Receivable personnel at the supplier and the Controller and Accounts Payable
personnel at the company. At the conference all the details of who had what
information were understood.
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The Diamond and Suppliers
Cross-Company Problem Solving and Process Simplification - A
week after the conference, a second meeting was held. This
meeting included representatives from the Sales Department,
Shipping Department and Customer Service Department, in
addition to the accounting personnel at the supplier. From the
company, in addition to the accounting personnel, the Receiving
Department manager and Buyer were in attendance. For this
meeting, all brought the business process maps from their
departments and close attention was focused on the interfaces of
information between the departments and the two companies, i.e.
between shipping and receiving, between accounts receivable
and accounts payable, etc. Glitches were found in the
information hand-offs both within and across both companies.
Actions were taken to remedy the causes of the errors. The
account transaction errors were reconciled, and new business
process activities were put in place to ensure the errors do not
arise again.
While this example is from what may be considered a mundane
dimension of the relationship between supplier and company, a
lack of attention to these details can cause major headaches.
Attention to them can result in a stronger more efficient and
effective relationship between company and supplier.
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The Diamond and Suppliers
Business Forecast
Sales Plan
Production Schedule
Inventory Plan
Order Release Plan
Demand
Information
(POS Data)
Warehouse Plan
The Search For Advantage
A distributor of health care products was operating in an industry segment undergoing rapid and massive consolidation.
Competition was cutthroat, cost pressures were monumental. The distributor was looking for ways to create barriers to
competitors by leveraging its relationship with one of its primary suppliers. The distributor had access to POS data from a
number of its customers, but had not really ever used this information.
The Opportunity
The distributor and supplier held a series of meetings to identify ways in which they might work together to reduce the total
cost of the distributors’ product to his customer. They both understood that the supplier’s lowering of the product acquisition
cost (one component of total cost) was not a practical solution for the supplier. The distributor and supplier decided to form a
team of IT personnel from both companies. This team took the demand data (POS information) over time and performed a
series of sophisticated data mining and analytical exercises. Through this work the team identified consumer purchase
behavior patterns within various SKUs, demonstrated during certain days of the week and months. From this work the team
created a tool for crafting a sales forecast for over one-half of the SKUs the distributor purchased from the supplier for the
distributor’s customers.
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The Diamond and Suppliers
Business Forecast
Sales Plan
Production Schedule
Inventory Plan
Order Release Plan
Demand
Information
(POS Data)
Warehouse Plan
Cross-Company Problem Solving and Process Simplification
Next, a team of personnel from the Sales Department of the supplier and the Purchasing Department of the distributor began to
review the historic demand data and the results of the IT team’s work. This team compared how the distributor had purchased
from the supplier historically, against the amounts the distributor’s customers were actually selling to their customers. They
noted how the purchasing patterns were historically out of synch, gaining visibility into both long and short stock positions of
the distributor’s customers. They also could see how scheduling their business using the forecasting model (which is based on
the weekly demand data) could potentially smooth out the flow of product through the supply chain, reducing inventories for the
supplier and distributor. Interestingly, they developed a six-month sales forecast, inventory level and turnover goals for each of
them, and a schedule of planned order releases against the sales forecast. They shared each other’s goals and held each other
accountable for the attainment of each others goals.
The distributor then took this data and analysis to the Distribution Center manager. They began to discuss how the change in
product flow patterns would impact the work in the DC. The DC manager began to consider smaller unit, more frequent
deliveries from the supplier and began to think of ways the supplier could package the inventory at shipment to make it easier on
the DC manager’s receiving and put-away processes. It was decided another team should be created. This team would be made
up of the DC managers of the supplier and distributor. The DC manager of the distributor invited representatives of the
receiving and put-away work groups to join this team. The DC manager of the supplier invited representatives of the pulling and
shipping work groups to join the team. From a series of meetings with this team it was concluded that new product packs could
be designed for the distributor. It was also determined that with better information they could eliminate the backorder method of
purchasing/receiving and change to a fill or kill method. This not only speeded up the receiving process, but also eliminated
major tracking and reconciliation issues in both inventory control and accounting.
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The Diamond and Suppliers
Business Forecast
Sales Plan
Production Schedule
Inventory Plan
Order Release Plan
Demand
Information
(POS Data)
Warehouse Plan
Cross-Company Problem Solving and Process Simplification (continued)
Seeing how these teams worked to impact inventory levels, receiving and shipping activities, and the activities in the
inventory control and accounting areas, it was decided that cross-company multifunctional communication was good.
Accordingly, a weekly telephonic Sales and Operations Planning meeting is now held with representatives of all the
departments in both companies to review the weekly sales forecast for the distributor’s customers. Decisions are made
from the information shared at that meeting on what product to move through the supply chain and what work to schedule
in both DCs. The result is that inventory levels and over-time are both down.
Extending the Opportunity
Now that the distributor is comfortable managing the flow of product from the supplier to himself, he is getting ready to
turn toward his customers. He wants to extend his command over the flow of product and the management of transaction
related costs from the supplier to his customer. He wants to anchor his management of product flow in demand planning
and be the driver of the supply chain, managing and controlling the information necessary to do this effectively.
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The Diamond and Employees
Supplier Team
--- IT ---
Company Team
- Transportation -
-- Product
Development --
- Sales/Purchasing -
-- Accounting --
-- Warehouse --
The gains that can be obtained by effectively and efficiently linking business processes between the company and the supplier are
very tangible. The gains typically improve productivity, i.e. reduced man-hours of effort per unit of work, lower manning levels, and
elimination of unnecessary activities and related work. In addition to the business process efficiencies to be gained, there are less
easily measurable gains to be obtained from the employees of both the company and supplier. Employees are given an opportunity to
contribute to the improved efficiency of their jobs by changing the causes of inefficiency at the source. They are working outside the
bounds of their traditional jobs making change to improve the methods used to perform their work. They become ambassadors of the
company working for improvements across company boundaries. Relationships are formed; open communications are fostered; and
employee satisfaction improves. This environment should have two tangible results. First, the employee turnover levels should
decrease. Second, the cross-company relationships should create barriers to entry for other suppliers. This is because the relationship
is built around the interaction of a many multi-functional personnel versus one sales person and one buyer.
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The Diamond and Employees
The Situation
An industrial products company collected warranty returned units from its customers and returned them to the supplier for
credit. Returns were picked-up from customers, held at the branch until certain minimum quantities were accumulated, then sent
to the regional DC for consolidation with units from other branches, then periodically sent to the main DC for further
consolidation and return to the supplier. Transfer transactions were recorded at each step of the physical movement of the units
to be returned. These transactions were processed by the company’s accounting department moving the inventory from one
location to another, and eventually claiming the return to the supplier. The supplier was receiving the returns and issuing the
appropriate paperwork to the company. This business process had been in place for twenty years.
Cross-Company Problem Solving and Process Simplification
For the first time, at its annual key supplier meeting, the company invited its accounting personnel and the supplier brought its
accounting personnel. As the two groups of accountants met, the topic of warranty returns and the laborious process associated
with processing the activity at the company became the focus of the discussion. As the accountants commiserated, a larger issue
emerged, that being, the cost to the company to move the returns from the customer through the main DC and on to the supplier.
The company’s accountants took ownership of the effort to review and change the way returns were processed. After a series of
meetings with product, distribution, and transportation personnel at the company and product, distribution, and transportation
personnel at the supplier, the accountants modeled a new process to transfer returns from the branches directly to the supplier’s
DC. In addition to the change in the physical flow of the returns, the accountants also clarified a number of the return “rules”
that were complicating the processing activity between the supplier and company.
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