Supply Chain Leader - Issue 5

Sales and operations planning has demonstrated that it is not enough to simply establish connection points between the supply and demand sides of the organization. Instead, supply and demand must be very closely aligned. And, because the dependent variable is human beings, people and processes must also be aligned, so that the high-level rewards translate into personal rewards that motivate individual contributors.

For organizations seeking the kind of tight alignment that allows them to manage—and even leverage—the human element, seven actions can improve overall performance and drive high-level results.

1. Define the top-level vision and expectations, then align the entire organization around that. This requires a holistic perspective that considers the interdependent relationships among different parts of the business, the contributions of each function and the rewards that will motivate individual employees. The people and processes within each function must support the desired results of the entire organization, and all functions must work together to achieve these shared goals. Incentives should reward those core behaviors that strengthen the entire enterprise, instead of focusing on narrow functional targets. Across the enterprise, multiple departmental measures should be replaced with a critical few metrics that measure progress toward ultimate business goals.

2. Redesign processes and technologies to maximize their ultimate contribution to results. Every key process within the business must be re-examined to maximize its contribution to top-level goals, and each process must be supported by highly collaborative, highly usable tools and systems. Many organizations begin this process by rationalizing their products, while others focus on enhancing transparency, so that planning and execution are better synchronized. A logical starting point for many businesses is specifying technology tools and systems that more effectively support strategic objectives, as well as key performance metrics.

3. Establish a cross-functional system of shared responsibilities and rewards. Closer interaction and visibility among functions create transparency, which enhances collaboration because individual functions can understand exactly how their own actions impact the larger organization. As everyone begins to share an accurate, timely view of demand and supply data, functional managers can implement control levers that recognize and respond to variability. Subsequently, the entire organization is empowered to take corrective actions and keep overall performance plans on track.

4. Build confidence through synchronized, operational information. The accumulation of hard data removes doubts and instills confidence throughout the organization. By sharing accurate, up-to-date information, the entire organization can understand what the larger goals are, how progress is measured, and what individual teams need to do. Salespeople can be confident in their projections, eliminating the need for “buffer volumes” that cover anticipated delivery failures. Acting with accurate forecast data, operations managers can confidently work against more realistic timelines and commitments.

5. Monitor and enforce progress toward larger goals. In a closely aligned environment of shared rewards, responsibilities and information, it is imperative to look at overall business performance on a continuous basis, examining any anomaly and acting upon it immediately. Enforcement actions must emphasize the interdependent nature of all functions, as well as the ramifications for the business as a whole. Variations in any aspect of the organization must translate directly into corrective action across the entire company.

6. Establish the right metrics and incentives. It is absolutely critical that performance metrics reflect the highest-level corporate vision, and that compensation systems reward the behaviors that help to achieve that vision. Employees should be motivated not just by traditional sales and operations goals, but also by more specific objectives that reinforce the overall strategy. For example, businesses seeking to increase collaboration between the sales and the operations teams can implement monthly commission payments based on shipments to bookings. This aligns sales goals with operations targets, ensuring that orders actually ship before salespeople are compensated. It also encourages a more consistent stream of orders, instead of the traditional end-of-quarter push that can negatively impact both cost and delivery performance.

7. Drive loyalty through reliability. A tightly aligned organization creates an environment of trust. Internal performance improvements carry forward across external partners, making the entire supply chain more reliable. Businesses can become better suppliers to their customers, and better customers to their suppliers. Reliability and trust create a collaborative supply chain environment, built on the confidence that promises will be kept and deviations swiftly corrected. Every action across the chain becomes connected to the highest-level results, and a sense of loyalty is created among customers. Supply Chain Leader / April 2008 43 Michael Levi is director of solutions marketing at i2.

Stripped to its core, our modern challenge is achieving operational excellence while also developing and delivering superior products to customers. This combination of cost and service decisions—balancing numerical outputs with the intangible human factor—lies at the heart of the results that everyone talks about today. Business performance is most easily understood at its highest level—its ultimate impact on financial results and market share—but it is hugely influenced by the behavior of individual human beings, which is much harder to predict, measure and control.

Many organizations completely overlook the human element in designing and managing their supply chains. Others view human behavior as an uncontrollable force, like the weather, which can only be responded to—not managed proactively. But, as the playing field grows increasingly competitive, and the stakes higher, some industry leaders are beginning to recognize the importance of understanding and managing the human aspect of their supply chains.

Both supply chain technologies and processes have reached a high level of sophistication, but they cannot be fully leveraged until the performance of the people who deploy them rises to the same level. Those companies that strategically manage the inherently unpredictable human variable of the supply chain will achieve significantly more value than those who do not consider its management mission-critical.