Aquisition - Assignment Essays

Please view attachments.

After completing the readings for the week, offer your perspective on what is

contract management, the contract life cycle, and contracting

competencies. Consider the four supply chain alignment configurations discussed

in the Dynamic Supply text. The four supply chain configurations are lean supply

chains, agile supply chains, fully flexible supply chains, and continuous

replenishment supply chains. Please write 250 words.

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‘Requisite’ Collaboration in
Enterprise Supply Chains1

John Gattorna

‘Collaboration’ is one of those concepts that is overused and overworked
in the supply chain vernacular

The reality is that for any product (or

service) category in a given market, it is very unlikely that more than 25
per cent of customers at best will have truly collaborative buying values.
By this I mean that they genuinely seek close relationships with their key
suppliers; tend to single-source; are brand-loyal; will share information
freely; are price-tolerant; and, above all, are forgiving in the way they tolerate
failures in supply. In other words, they have the perfect customer profile. Yet
what do many suppliers do? They ignore these sometimes suffering customers
as they relentlessly pursue other more demanding customers who have none
of the virtues listed above. Worse still, suppliers take advantage of their
loyal customers by using them to cross-subsidize their more costly efforts in
servicing demanding customers.

deBunKinG some oF the myths

In the early years of ‘lean’ manufacturing, as introduced and practised
by Japanese manufacturers, it was taken for granted that suppliers would
collaborate in the systematic joint effort to eradicate cost, rather than just
move it up and down the chain. This was a given, and all the parties to these
selective arrangements benefited. However, as globalization took hold and
supply chains became longer and more complex, something was lost in the
translation. Today, while there are still supply chains in which the parties
collaborate, there are also many other supply chains in which this is not
the case. Indeed, various generic types of supply chains coexist in parallel to
provide different supply experiences for customers in the same market. In
my book, Living Supply Chains,2 I make the distinction between those market
situations where customers are genuinely collaborative and those where they
are not. Why? Because you have to recognize which is which and deliver
different ‘value propositions’ via different network configurations. We are
now operating in a world where fine nuances make the difference between
success and failure, operationally and financially, and you ignore this reality

Gattorna, J., & Friends (2009). Dynamic supply chain alignment : A new business model for peak performance in enterprise supply chains across all
geographies. Taylor & Francis Group.
Created from apus on 2023-02-06 15:32:33.

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at your peril. To avoid confusion, I have labelled those supply chains where
true collaboration exists as ‘continuous replenishment’.

truly ‘collaBoratiVe’ supply chain
conFiGurations

The cultural value that is treasured above all others in a truly ‘collaborative’
supply chain is trust, which in turn
leads to close working relationships
for mutual gain. Information is
shared freely; long-term stability in
the relationship is actively sought,
and strategic partnerships are forged
for mutual benefit. This is the much
sought-after ‘collaborative zone’ as
depicted in Figure 1.1 in the previous chapter (p. 48), and it is a condition
that inevitably takes time and patience to develop and nurture.

However, it is also a condition that depends almost wholly on the ‘alignment’
of cultures between buyers and suppliers in the chain, rather than anything
more tangible. This is the part where many executives are either out of their
depth or simply in denial about. Why? Because they either don’t understand
or don’t want to delve into this abyss where all the ‘forces of darkness’ exist
in their own organizations. I have always said that this is the area we should
be focusing on, rather than getting carried away with Porter’s competitive
analysis. In reality there has been an unhealthy preoccupation with
competitors and monitoring competition over the last few decades, often to
the point of paranoia, and this has distracted executives from looking more
deeply at the internal cultural capability of their own enterprises, where
progress and greater understanding is going to bring greater returns for the
time, effort and money invested. We will not be able to go to the next level of
supply chain performance until this mountain is climbed and conquered.

the uniQue suBculture oF ‘collaBoration’

The key is to identify which customers have truly collaborative values
and treat them as a separate segment to the others in your customer base.
Unilever’s former CEO, Anthony Burgmans got it right when he said, in effect,
that you should only collaborate with those customers and (suppliers) who genuinely
want to collaborate.3 For the rest, do whatever you have to do, but don’t waste
your time trying to be collaborative – it is too wasteful of resources and goes
to the heart of my observation that too many suppliers are overservicing some
customers and underservicing others, and have no idea which is which!

‘Suppliers take advantage of
their loyal customers by using

them to cross-subsidize their
more costly efforts in servicing

demanding customers.’

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‘R
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So how do we shape the appropriate internal culture to drive continuous
replenishment supply chains towards those customers who genuinely seek
a collaborative relationship? It involves a unique combination of standard
resources, as follows:

Set up a series of multidisciplinary account ‘clusters’ that dedicate all
their attention to specific clients, or groups of clients, who are clearly
collaborative in both spirit and action.

Select personnel for these teams such that the net bias in each team is
one of empathy for customers and stability of the relationship.

Put standard customer account management processes in place.

Underpin these processes with selected technologies such as Customer
Relationship Management (CRM), Vendor Managed Inventory
(VMI) and other customer-friendly point applications. This is the
right place to use such systems, but be warned that they are not as
effective in other situations where customers do not display genuine
collaborative values.

Develop two or three Key Performance Indicators (KPIs) that will
help you keep key customers’ (or suppliers’) relationships on track:
for example, length of time the customer has been buying from you;
the share of the customer’s wallet in a particular product category.
Other KPIs such as forecast accuracy and Delivery-In-Full-On-Time-
Error-Free (DIFOTEF) are simply taken for granted in this type of
relationship.

Ensure that incentives for internal staff focus on schemes that
encourage participation and sharing within the serving team – there
is little place for individual egos in this subculture.

Make job designs consistent with the incentives and involve a lot of
discussion and consensus – fortunately there is always time available
for a lengthy process with this type of customer because they don’t
like quick action and surprises.

Ensure that there is a lot of personal face-to-face communications
within the account clusters.

Focus most of the training on team-building.

Carefully select the personnel recruited to account clusters on the
basis of the ‘Feeling’ (or F) dimension in their Myer Briggs Type
Indicator (MBTI).

Use a leadership style in the account clusters that is typically quite
traditional in that everything is done by the book and stability of the
relationship is regarded as paramount.

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In other words, the internal clusters that service collaborative customers,
across all disciplines, have to ideally reflect the same values as the customers
that they serve.

‘reQuisite’ collaBoration: a more accurate
descriptor

So ‘collaboration’ is a condition that is definitely not for everyone. I prefer
to think in terms of ‘requisite’ collaboration – that is, collaborating as much
or as little as a particular customer wants or deserves. In this way you avoid
a lot of costly overservicing. Once you
have identified the truly collaborative
customers in your marketplace you
can take a minimalist approach to
contracts and focus more on non-binding
Memoranda of Understanding (MoUs)
that provide guidance for engaging each other, but ultimately always rely
on trust. And it works. Research I led in the Asia–Pacific region in 2003
clearly showed an inverse correlation between the performances of 3PLs
in situations where they were locked into rigid and complex contractual
arrangements.4

As we move beyond traditional buyer–seller relationships and 3PL-style
supplier relationships to more complex new supply chain business models
(such as 4PLs), it is going to be vital that the partners selected to join
supply chain consortiums and joint ventures are culturally aligned from the
outset.

a techniQue to consolidate collaBoratiVe
relationships

One technique that I have developed over the years to help foster
collaborative relationships is ‘strategic partnering’. This is a process I have
written about at length in Living Supply Chains,5 and involves developing
enduring corporate relationships based on understanding and shared
knowledge. The process takes its name from developing and maintaining
a strategic ‘fit’ between the goals, capabilities and market opportunities of
both buyer and seller organizations involved in a particular situation. The two
parties commit to a unique, but not necessarily exclusive, relationship that is key to
success, and it works!

‘Not every buyer–seller
combination is ready for a
collaborative relationship.’

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notes

1 Adapted from an article, ‘Collaboration in supply chains – the myth and
the reality’ in Supply Chain Asia, (March/April 2008), pp. 16–17.

2 J.L. Gattorna, Living Supply Chains, FT Prentice Hall, Harlow, 2006.
3 Anthony Burgmans, speaking at the 6th ECR Conference, Edinburgh,

2001.
4 ‘Characteristics, strategies, and trends for 3PL/4PL in Australia’, Alpha

Research Consortium, for the Logistics Association of Australia, 2003.
5 See Appendix 5C, ‘Strategic partnering’ technique, in J.L. Gattorna, Living

Supply Chains, op. cit., pp. 308–312.

ALIgNmENt INSIghtS

Not every buyer–seller combination is ready for a collaborative
relationship. Remember Burgmans’ words: only collaborate with those
who want to collaborate.

Where you do choose to collaborate, you need a special type of supply
chain configuration – the continuous replenishment supply chain.

The new mantra for business, even in hostile competitive situations,
should be to ‘compete in the market, but cooperate in the supply
chain’. This is a best-of-both-worlds strategy.

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People Powering Enterprise
Supply Chains

John Gattorna

Let’s cut to the chase and stop dancing around the issues that pervade
contemporary supply chains

People, and people alone, are at the centre

of every enterprise supply chain that exists in the world today. On the
outside we call these people ‘customers’ or ‘clients’, and on the inside we
have boards, management and employees running the business. That’s a lot
of involved people! But where are the Human Resource Management (HRM)
professionals? Aren’t they supposed to advise and assist top management to
shape all this ‘people power’ on the inside of organizations so that we can
better satisfy customers and produce a correspondingly improved bottom
line? Of course there is no ‘bottom line’ if there is no ‘top line’, a fact that is
sometimes lost on managers with a one-dimensional focus on costs.

It seems to me, as I travel the world and engage with major corporations,
that the number of HRM professionals is increasing, but their impact is
getting less. I see no evidence that they have mastered the complexity that
disparate human behaviour brings to organizations, and, by extension,
supply chains. Quite to the contrary, I observe a reversion to type, where they
preoccupy themselves with activities that they mostly feel comfortable with
– for example, personnel administration, car policies, recruitment, wages
and award payments, health and safety, superannuation, and other routine
matters.

a more enliGhtened View oF contemporary
supply chains

Supply chains permeate every type of enterprise, whether commercial or
not-for-profit; they pervade our lives and are the ‘pathways’ through which
products and services move as they gather value (and cost) en route to the
end-user/consumer. Along the way there are lots of processes, activities and
relationships involved, enabled by technology and infrastructure. But the
latter are only enablers, not the main game. I think we have forgotten this
reality as we progressively became smitten by advancing technology, and in

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turn this has sidetracked many organizations away from the only focus that is
important – customers. This reality is particularly true of enterprises that have
been through the rigours of implementing an Enterprise Resource Planning
(ERP) system. But it should not necessarily be the case.

The truth is that most organizations have not reached an acceptable level
of understanding of their customers’ dominant buying behaviours, because
they haven’t really been thinking in these terms, although few, if any, will
admit it. I see very few enterprises in my travels that genuinely understand
and have an in-depth knowledge of their customers. Even those that do
appear to quarantine that knowledge in functional silos such as Marketing
or Sales, which then leaves the back-of-shop operational staff largely in the
dark, and second-guessing customer
requirements. Hey, if we would only
admit to ourselves that the real enemy
is on the outside of the organization,
not on the inside, we would be
much better off! The real villains are
marketing and sales personnel who are
not doing enough to translate their sometimes intimate knowledge through
to other parts of the enterprise. But we will leave that particular argument for
later.

aliGninG the enterprise around customers

There is only one fail-safe frame of reference when designing and operating
contemporary supply chains – the customer and the customer situation. This
is the starting-point for all subsequent action. If you don’t think this way,
you are either guessing or kidding yourself! Once you fully understand the
behavioural structure of your marketplace it is possible to ‘reverse engineer’
the configuration of your supply chains back through the organization to
actual operations on the ground. And, because there is always more than one
type of dominant buying behaviour evident in any product/service-market
situation, it follows that there is likely to be more than one type of supply
chain. Indeed, I have consistently found empirical evidence to suggest three
to four generic types of supply chains, and/or variations of these, in different
mixes, depending on the product, service or country. Briefly, these are as
follows:

continuous replenishment supply chains to service the ‘collaborative’
segment;

lean supply chains to service the ‘efficiency’ segment;

agile supply chains to service the ‘demanding’ segment; and

fully flexible supply chains to service the ‘innovative solutions seeking’
segment.

‘The number of human
resource management (HRM)

professionals is increasing, but
their impact is getting less.’

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And as customers move away from their natural or preferred buying
behaviours there is a good chance that they will move, either temporarily or
permanently, to one of the other three buying states listed above. In some
large organizations it is possible to discern more than one buying behaviour
present. So, any response must have a dynamic capability; this is not duck-
shooting where you have a single response and endeavour to infinitely adapt
your response as customers move across your sights. That approach is cost-
prohibitive because of the myriad exceptions involved, and it is very wearing
on the people inside the business.

Once you pin down the structure of your marketplace, it is possible to develop
a corresponding range of responses that align with the different customer
buying behaviours you have identified. This becomes a packaging exercise
where you mix and match recipes of attributes such as price, brand, speed
and/or consistency of delivery, relationships, degree of innovation and more.
The same basic product or service can be delivered in many different ways
to suit the same or different customers. All well and good, but the problems
are only just starting. The devil is in the detail of implementing the supply
chain configurations to deliver these intended strategies, rather than their
formulation, and that is where people play major roles, front and centre. They
can either make things happen, or resist simply because they want to. This is
an insidious form of resistance because it is difficult to identify and measure
in real time, and often the effects only become apparent after significant time
has elapsed. And by then it is usually too late to recover.

the Key to successFul execution is people

The dynamic alignment concept requires that four levels of human endeavour
be aligned – marketplace, response(s) to customer demands, internal cultural
capability and leadership style – all held together primarily with leadership,
organization structures, processes and technology. The biggest problems
occur at the interface between intended responses (strategies) and the internal
cultural capability of the enterprise. Indeed, 40–60 per cent of written plans are
never delivered on the ground, and the reason for this is the dislocation that
occurs at the strategy–cultural capability interface. It is not due to competitor
activity as many would have us believe. The root cause of non-performance
is much closer to home – that is, inside the enterprise itself, a type of ‘Trojan
Horse’. My question therefore is as follows: what have HRM professionals been
doing to understand and address these issues for, and on behalf of, CEOs?
Where is the research to better inform practice? In short, where have they been
when we needed them most? Are they not the custodians of the corporate
culture? How have they advised top management in the quest to reduce
obvious ‘misalignments’, particularly at this crucial interface? The answers to
all these questions are pretty negative, and, worst of all, there is little or no
respite in sight. Organizations continue to operate much as they have done
for decades, and educational institutions are teaching the same old stuff to

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their students, the next generation of managers. It’s a vicious circle that we
must break out of sooner rather than later. That time is getting close for many
organizations – otherwise they won’t survive.

the Four Generic supply chain aliGnment
conFiGurations

Each of the four generic supply chain types listed above look different at each
level of the alignment framework. They have to be in order to focus on a
particular dominant buying behaviour. Each of these unique configurations is
depicted in Figures 1.1–1.4.

For the purposes of this discussion we will focus on the forces at work at the
cultural capability level, because it is here that the human action inside the
enterprise plays out, mostly hidden from view. This is also where the ‘forces
of darkness’ lurk, leading to gross organizational ineffectiveness. It is also
right here that we need HRM professionals to be focusing their attention and
providing technical advice and support to senior management. The following
attributes that shape and create subcultures are the ones we want them to
focus their attention and energies on.

Organization design. Other than ‘leadership style’ itself, this is the most
powerful force for shaping subcultures because it constrains the way
in which people work, just like a straitjacket. Unfortunately, it is also

Figure 1.1 Continuous replenishment supply chains

Coach
• Conscientious
• Leads by teaching
• Concerned for others
• Loyal; committed; politically astute
• Seeks agreement by consensus

Group subculture
• Relationship ‘cluster’
• Standard processes, eg. Customer Account Management
• CRM; SRM; VMI; ECR; CDP; CPFR
• Emphasis on loyalty and retention
• Encourage participative schemes
• Authority/autonomy negotiated by consensus
• Consultative; face-to-face
• Team-building
• Recruit team players

• Share information
• Strategic partnerships
• Long-term stability
• Mutual trust

Cultural Capability
• OD
• Process
• IT
• KPIs
• Incentives
• Job Design
• Internal Comms
• T & D
• Recruitment

Collaboration
Zone

Value Proposition

Focus

Leadership Style

Relationship Development

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the area that has seen the least progress in theory over the last several
decades. Organizational designers have been unable (or unwilling)
to come up with anything better than the traditional functional
silos, and variations of this, such as matrix structures. Functional
silos served us well in the relatively slow-moving world of the 1950s,
1960s and 1970s, but have become progressively more misaligned
with the way customers want to buy over the last two decades. It
seems we will never rid ourselves of this format, and maybe we won’t
have to. More about that point shortly.

Matrix organization structures were introduced to overcome the
weakness highlighted above in functional silos, but have generally
not been effective, and will not get any more effective from here on.
The problem is the internal conflicts generated at each intersection
between a customer-focused account manager and the all-powerful
vertical functions that hold the budgets. No joy there.

In my view there is a way forward that allows us to engage and
align with customers more effectively in a fast-moving operating
environment. I called this organizational format a ‘cluster’. The
idea is to build groups or clusters of multidisciplinary personnel
that faithfully replicate both the competences required to service
a particular customer segment, as well as embedding the required
mindset bias. For example, where we have a continuous replenishment
supply chain aligned with a collaborative segment of customers, it

Figure 1.2 Lean supply chains

• Seek economies of scale
• Low-cost production & distribution
• Forecast demand; mature products;

predictable lead- times
• High reliability

Hierarchical sub-culture
• Organize clusters around core processes
• Standard processes; emphasis on cost
• L-T capital investment in ERP and other IT systems
• DIFOTEF; forecast accuracy; productivity ratios
• Conformance to policies
• Centralized control – rules and regulations apply
• Regular; structured; on ‘need to know’ basis
• Emphasis on analysis and measurement
• Recruit players with analytical skills

Traditional
• Leads by procedure; precedents essential
• Implements proven business practices
• Cost controller; efficiency focus
• Uses information to control
• Seeks stability
• Risk-averse

Cultural Capability
• OD
• Process
• IT
• KPIs
• Incentives
• Job Design
• Internal Comms
• T & D
• Recruitment

Value Proposition

Focus

Leadership Style

High volume; Low variety; Low costs; MTF

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is important to embed a ‘relationship’ mindset or subculture and
support this with the appropriate processes and technology, as
discussed below.

In this way, we can keep the conventional functional silos in place,
but with a different raison d’être. They become the repository of
specialist skills and competences, and the ‘force generator’ from
which the new clusters draw personnel of all disciplines for short- or
long-term assignment to particular clusters.

Likewise, clusters for each of the other three types of supply chain can
be configured with the appropriate mix of disciplines and mindsets.
Surely this is an area where HRM professionals can play a major role,
working with functional and cluster heads to engineer the required
configurations. More details on how to design and operate ‘clusters’
follow in Chapter 9.

2. Positioning people in appropriate roles – that is, square ‘pegs’ in square
holes. This is where the fine-tuning begins. Personnel are closely
reviewed in terms of their technical skills and mindsets, using such
techniques as the Myers Briggs Type Indicator (MBTI) for the latter,
to ensure that they ‘fit’ any roles they are appointed to. We are
talking about nuances here, but they count tremendously towards
organizational effectiveness at the aggregate level. The days of wiping
out whole layers of management are gone. Looking back, that was
born of ignorance and heavy-handedness.

Figure 1.3 Agile supply chains

Company Baron
• Leads by objectives
• Embraces change
• Goes for growth
• Focuses on what’s important
• Analytical; fact-based solutions

Manage enterprise for responsiveness; quick reaction; MTO

• Fast decision-making
• Fast delivery; flexible scheduling
• Rapid response in unpredictable conditions
• Available capacity

Rational subculture
• ‘Clusters’ designed for speed and focused on specific subsegments
• Process short-cuts; fast response
• Applications: Postponement; SCP; APS; Network Models
• Absolute speed of response
• Achieve targets; cash and in-kind bonuses
• Authority/autonomy established by clear and published limits
• Formal; regular; action-oriented
• Problem-solving; resource management
• Recruit personnel who are results-driven

Value Proposition

Focus

Cultural Capability
• OD
• Process
• IT
• KPIs
• Incentives
• Job Design
• Internal Comms
• T & D
• Recruitment

Leadership Style

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3. Process re-engineering. There are no mysteries here, but the key is to
ensure that the primary processes which align with each supply
chain type or pathway are in place. They become standard and are
invoked by the cluster as required.

4. Information technology and systems. These simply mimic and
institutionalize the processes already established through enlightened
re-engineering. The problem to date has been that organizations
have been throwing the full gambit of systems technology at every
type of customer situation, without discrimination, looking in vain
for the ‘silver bullet’. However, there is no such thing in supply
chain management. What we need is an underpinning ERP system
to provide one version of the truth, and then interface this with
different combinations of IT applications. So, for example, the main
application servicing the collaborative customer segment might be
a Customer Relationship Management (CRM) system. It will help
us manage the loyal high-value customers in the way they expect,
where relationships and trust are paramount. More about this vital
dimension later in this chapter.

5. Key Performance Indicators (KPIs). This is an area of management
that seriously impacts on performance, yet is so badly understood.
People will do what’s inspected, not what’s expected. So you have
to use this principle in framing the KPIs unique to each type of
supply chain. Out with the so-called ‘balanced scorecard’, and in
with a few very carefully selected KPIs, purposefully designed to

Figure 1.4 Fully flexible supply chains

Visionary
• Leads by inspiration; authentic
• Informal
• Decisive
• Cares about ideas
• Values innovation

Entrepreneurial
• Small multi-disciplinary ‘cluster’, usually on standby
• No standard processes; use local initiative at the time
• Low systems requirements; event management appls
• Emphasis on finding creative solutions, very fast
• Reward individualism & risk-taking behaviour
• Autonomy through empowerment
• Spontaneous and informal
• Lateral thinking; brainstorming
• Recruit enterprising, resourceful personnel

• Meet unplanned/unplannable demand
• Innovative solutions, delivered extra fast
• Extensive human intervention

Hedge and deploy resources

Value Proposition

Focus

Cultural Capability
• OD
• Process
• IT
• KPIs
• Incentives
• Job Design
• Internal Comms
• T & D
• Recruitment

Leadership Style

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faithfully signal what management wants people in the firm to do.
More about this in following pages of this chapter and Chapter 14.

6. Incentives. These are the mirror image of the KPIs, selected especially
for particular situations. It’s a matter of ‘horses for courses’. What are
the most appropriate incentives for personnel who are themselves
steeped in relationship-building and maintenance. Is it cash? Or is
it something in kind that will further motivate them? Again, over to
the HRM professionals to figure this out. That’s what they are paid
to do!

7. Internal communications. Different subcultures have different
communication styles. The trick is to embed the style that best
aligns with the subculture you are trying to shape. In the case of
the organizational cluster driving the continuous replenishment
supply chain, this is likely to be very inclusive, with actions
only being taken after a consensus is reached. To be fair, this can
sometimes be a slow drawn-out process but, then again, when you
are servicing this type of relationship-focused customer, time is
on your side. Nothing changes fast. Everything is a result of a lot
of thoughtful consideration. So the cluster is just reflecting that
trait.

8. Training and development. Here we expect that HRM professionals will
design and conduct a Personal Development Programme (PDP) for
each and every individual executive. Gone are the days of spending
big on mass training initiatives. This was wasteful at best and a
dereliction of duty at worst.

9. Recruitment. This parameter represents a very powerful force for
‘genetically engineering’ selected subcultures in an organization,
to reflect the external market structure. Thankfully, I have met a
number of recruitment firms recently that ‘get it’ and are actively
engaged in delivering individuals to enterprises that meet technical,
experiential and mindset parameters. Logistics Recruitment2 is
one such organization, Russell Reynolds is another, and their
efforts are to be applauded. What we need from the internal
HRM professionals is engagement in this vital enterprise-building
process.

10. Leadership style. Finally there is the overarching influence of
leadership style that is perhaps as important in shaping subcultures
in enterprises as organization design. Here again, there are plenty
of sophisticated tools available to HRM professionals to measure
and monitor management and leadership styles, but you also have
to know what to do with this data. HRM professionals can assist
management by helping and advising in the formation of the
various clusters and, in particular, which individual executive is
appropriate for the particular leadership role being considered.

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technoloGy is a wonderFul thinG

Indeed, technology is a wonderful thing when it comes to operating supply
chains. The convergence of the Internet and the simultaneous development
of a myriad software packages in the early 1990s was the breakthrough we
had been waiting for. This broke the stalemate we had been caught in for the
entire previous decade, as companies struggled to improve internal cross-
functional integration. Up until that point, efforts to improve integration
had largely been stymied by internal cultural forces bent on resisting change,
and problems with the compatibility of various available technologies. All
that changed sometime in the 1990s, and, if anything, the balance swung
too far the other way as companies raced to meet the dreaded Y2K deadline
of 1 January 2000.

That said, there is still too much emphasis on technology as the likely
‘silver bullet’ which is going to solve all the problems of underperforming
corporate supply chains; this will never be the case. Nevertheless, too many
enterprises are throwing every type of system at their supply chains, with
little thought as to what designs do and don’t work. Too often, large system
implementations are justified on the basis of false premises – for example,
inventory reduction and increased stock-turns – when they should be seen as
a strategic investment and foundation for other systems.

My work in the field with many companies over the years reveals that the
specific configuration of the technology we should apply inside a particular
business depends largely on the structure of the market being served and the
corresponding behavioural segmentation. This in turn informs what processes
are most appropriate for each major segment, and the technology that
underpins these processes simply follows.

Those readers who are familiar with my recent book, Living Supply Chains3
will know that I have concluded, from many observations made in the field,
that there are up to four main types of customer buying behaviour evident
across many product/service categories, and this immediately equates to four
corresponding generic types of supply chain, as indicated earlier. If this is true,
and we believe it is, then each of those supply chains inside the company
will require different treatment along several dimensions. And all four of
these generic supply chains are likely to coexist. Indeed, the way we organize
ourselves internally is simply
a mirror image of the way our
marketplace is structured in terms
of customer buying behaviour. It
stands to reason, therefore, that
each type of supply chain will
require a different technology
recipe to achieve close alignment with the corresponding segment, and such
is the case.

‘There is still too much emphasis
on technology as the likely “silver
bullet” which is going to solve all
the problems of underperforming

corporate supply chains.’

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‘reQuisite’ technoloGy

Like so many other things in life, there are patterns that work and those that
don’t work, and the same is true of technology applications. So, while an
enterprise will surely benefit from discarding all its old legacy systems and
replacing them with a single ERP system, that is only part of the story. What
goes on top of this ERP is what matters. This argument is best amplified by
the analogy of renovating an old house or a bathroom or kitchen at home.
You can spend a lot of money on the new wiring and plumbing that goes in
behind the walls, unseen. But you don’t get the value from all this investment
until you apply all the fittings – the taps, basins, toilet pans, electrical
switches, light fittings and so on. The same holds true for technology, as
depicted in Figure 1.5 which features the Oracle Suite by way of example.

Each supply chain type has a different technology emphasis. So back to our
original theme which requires us to mix and match the applications that sit
on top of the ERP, like ‘pimples on a pumpkin’.

Continuous replenishment supply chains. This is the genuine
‘collaborative’ zone, and here the primary, indeed only emphasis,
is on keeping the relationship going with our most loyal customers.
There may only be 20 or so of them, but they could easily represent
60–80 per cent of our revenue and 80 per cent of our profitability.

The customer account management process is key in this situation
and should be underpinned by a suite of applications such as:

Customer Relationship Management (CRM);

Vendor Managed Inventory (VMI);

Collaborative, Planning, Forecasting and Replenishment (CPFR);

and likewise on the supply side where relationships with strategic
suppliers are critical – that is:

Supplier Relationship Management (SRM).

2. Lean supply chains. In this situation the emphasis moves away
from loyalty and retention of loyal customers to a simple focus on
efficiency and lowest cost-to-serve.

All the processes will be standard, and the approach is to build
clusters of personnel around specific processes, so that they become
absolutely routine and low-cost. More about this in Chapter 9.

The primary technology is the ERP system, supplemented by a network
optimization modelling tool which is interfaced directly to the ERP.
Other execution systems such as a Labour Management System (LMS)
for scheduling the workforce will help drive costs down, and a Radio
Frequency Identification (RFID) system will be invaluable in keeping
track of stock and triggering replenishment protocols.

•

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3. Agile supply chains. Here the emphasis changes to absolute speed of
response, even if that costs more! The name of the game when serving
highly demanding customers in an unpredictable environment is
to have the capacity already available – it’s too late to scramble for
capacity when demanding customers come calling, and, of course,
they never give you a forecast in advance!

The trick is to reduce the number of processes to a minimum and
use your technology to quickly run viable scenarios to fulfil the
demands. Likewise with suppliers where you are pushing them for
an emergency order that was not in the original forecast.

Most companies that develop agile capabilities use a range of tools
and techniques – for example,

Postponement: build an inventory of raw materials and/or
components; or

Build standard modules that can be quickly assembled into
unique configurations;

Supply Chain Planning (SCP);

Advanced Planning and Scheduling (APS); and

Customer Account Profitability (CAP); and, above all

A network optimization modelling tool to assist decision-
making.

•

Figure 1.5 ‘Requisite’ technology for supply chains

Customer
‘Buyer-Behaviour’ Segments

Collaborative
Cost/Price-

Driven
Demanding/

Unpredictable

Solution-
Seeking

ERP Transaction System (The Foundation)
and Data Base

OTM (G-LOG)

ORACLE WMS

SIEBEL CRM
DEMANTRA

DEMANTRA
SNO (NUMETRIX)

OTM (G-LOG)

SNO(NUMETRIX)
DEMANTRA

OTM (G-LOG)
AGILE – PLM AGILE – PLM

ORACLE WMS

Lean
Supply
Chain

Agile Supply
Chain

Fully Flexible
Supply Chain

Different
Combinations

of IT
Applications

•

a
•

a
AA

Pa Pa

Using the Oracle Suite as an example

J.D.Edwards
• Peoplesoft (HR)
• e-Business suite (EBS)

Continuous
Replenishment
Supply Chain

•

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4. Fully flexible supply chains. This is a ‘catch-all’ supply chain

configuration that uses a high degree of human intervention, and
potentially any and all systems as required, to produce an innovative
solution in quick time for the customer, who at this stage doesn’t
care about the price. The situation is hurting them so much that they
just want a solution, and very often it is only the supplier who has a
chance of finding a solution in such a short timeframe. This type of
supply chain uses whatever it takes to get a satisfactory result for the
customer, and the technology can be sophisticated or basic.

In the end, typical situations involving a string of supply chain partners
will require participants to mix and match different combinations
of supply-side and demand-side technology point applications as
described above. So a company such as Zara in the fashion industry
might use lean techniques on the supply side, build a raw materials
bank close to its consumer markets, and use postponement protocols
to respond quickly to the fickle consumer fashion market on the
demand side. Of course, the key on the demand side is to have the
capacity to respond to unexpected surges in demand, in production,
and downstream through to the store. Ultimately, knowing where to
deploy what technologies is one of the vital keys to success in any
marketplace.

out with ‘Balanced’ scorecards in supply
chains, and in with ‘Biased’ Kpis

There is nothing wrong with measuring aspects of your organization’s
performance, because after all we know from bitter experience that ‘people do
what’s inspected, not what’s expected’! But how far do you go in collecting
data and analysing the myriad pivotal points in an organization? There is
certainly no shortage of material on this point, and in the vanguard is the
work of Kaplan and Norton (1992).4 Their early work in particular was very
comprehensive – perhaps too comprehensive. Why do I say that? Because on
many occasions I have witnessed company executives bogged down in the
detail, slavishly collecting data according to a long checklist, but have seen
little evidence that this data, once collected, was fully analyzed and used in
appropriate ways to increase performance. The hype may say otherwise, but
this is the reality. Examine your own conscience on this point.

To be fair, the Kaplan and Norton ‘balanced scorecard’ incorporated both
internal and external perspectives, and sought to cover both financial and
non-financial measures, but it brought with it many critical weaknesses both
in concept and operational use. Not the least of these were the difficulty
of using it as a comparative tool between business units and the lack of a
mechanism to aggregate measures for management across several business
units in a conglomerate. In many ways it was a good idea that was primarily

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useful in translating an organization’s strategic objectives into a coherent set
of performance measures, no more, no less. 5

More recent work by the same authors has attempted to overcome some of
these weaknesses, but the fatal flaw is that they continue to treat the subject
of performance measurement as an inanimate process rather than what it
actually is: one of several levers potentially available to shape internal culture
in the enterprise, which in turn shapes and drives visible behaviour.

shiFtinG the Focus

We need to look at this issue of performance measurement and management
in an entirely different way, and the first clue as to how this might be done
comes with the realization that enterprises are really an aggregation of
supply chains (or pathways) running through them, from source(s) of raw
materials, components, packaging and sub-assemblies, along a myriad links
to nodes in the network where value-creating activities are performed, and on
downstream to customers and ultimately end-users/consumers. Along these
pathways information and finances are exchanged and important human
relationships are formed and managed. It is these human relationships that
power supply chains and therefore the business overall. Technology and
infrastructure are simply the enablers, albeit essential ingredients to success.

Referring to Figure 1.6, we will now consider each of the four generic supply
chain types as they are influenced by KPIs. The essential point is that we
should select and use a few KPIs with each type of supply chain, and the
emphasis will, by definition, be different in each case. Gone are the general

Figure 1.6 Performance measures: the four generic supply chains

Source: Adapted from Figure 2.3 in J.L. Gattorna, Living Supply Chains, FT Prentice Hall,
London, 2006.

R
el

at
io

ns
hi

p
w

ith
c

us
to

m
er

Predictability of
demand

‘ Continuous
Replenishment‘

‘ Lean‘

Loose

Tight
High Low

Predictable demand,
easily managed through
tight collaboration with
customers.
Measures focus on
retention, reliability &
customer account
profitability.

Demand predicable, (for
example, from historic off-
take), but the loose relationship
does not necessitate an
extreme service level.
Measures focus on
predictability,
accuracy, quality &
efficiency.

Respond
opportunistically &
manage yield.
Measures focus on
fast, creative
solutions.

Unplanned or
unforeseen demand,
and a sometimes loose
relationship with
customers – almost
always demands an
agile response at
higher cost-to-serve.
Measures focus on
speed & innovation.

‘ Fully Flexible‘

‘ Agile‘

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measures that can’t be traced back and connected to specific facets of
performance.

Continuous Replenishment Supply Chains – Where
Relationships Matter Most

Here we are measuring such factors as: length of customer relationships;
the degree of information being shared both ways; and the percentage that
we, as a supplier, represent of a particular customer’s spend in a particular
product category. The focus is clearly on service reliability and retention of
the relationship over the long term. Nothing less is acceptable, and yet how
often do we see these valuable customers ignored and eventually lost forever,
because they never come back no matter how much effort we pour, albeit
belatedly, into the cause?.

To engage customers of the collaborative type in this way we need to create
a ‘relationship’ subculture inside the business, which goes well beyond
most commentators’ process approach towards the subject of performance
measurement and management.

Lean Supply Chains – Where the Focus is on Efficiency and
Lowest Cost-to-Serve

In this type of supply chain we are bent on delivering a low-cost predictable
service to customers who otherwise don’t care for extras. In terms of
measures, those that come to the fore are forecast accuracy, Delivery-In-Full-
On-Time (DIFOT); cost per unit; and selected productivity ratios. Nothing
else matters much. So inside our organization we need to encourage a ‘cost-
controlling’ subculture that puts conformance to policy right up there in
lights. This is not a place for mavericks.

Agile Supply Chains – Where Quick Response is Paramount

The emphasis in this type of supply chain moves from reliability to
time sensitivity. How long does it take us to respond to the customer’s
request, even though we did not know it was coming? This is the world
of unpredictability, and surviving and thriving requires wholly different
capabilities. We measure time to respond and we measure the capacity of the
supply chain at vital points along the pathway to our customers. It is more
a case of optimizing our resources than maximizing utilization, because, by
definition, servicing customers in this mode means that we need to design in
redundancy, and that costs money, which customers must be prepared to pay
for at some point.

The corresponding subculture is ‘aggressively customer-focused’ and bent on
speed. This is not a place for long-drawn-out processes or consensus-seeking.
This is a place for action.

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Fully Flexible Supply Chains – Where Nothing is Impossible

This type of supply chain is designed
to respond to the unplannable event
and is therefore hard on resource
usage. We are not bothered about cost,
or utilization, or even relationships
in this type of supply chain – only
getting an acceptable result for
the customer, fast, very fast. We see elements of this type in emergency or
humanitarian operations, in breakdown situations and in military operations.

The subculture inside the organization is very much ‘can-do’, and everything and
anyone who can assist in getting the desired result is drawn into the effort. There
are little or no concerns about cost because a ‘no-fix’ means even greater cost.
Creativity and innovation are key characteristics in this type of supply chain.

‘Biased’ rather than ‘Balanced’

So that’s where the preference for a ‘biased’ approach comes from – simply
from recognizing that particular buying behaviours exhibited by customers at
the end of supply chains requires differential – sometimes radically different –
treatment to other situations. The ‘one-size-fits-all’ philosophy is dead forever,
and with it goes all the general approaches to performance measurement and
management. We must know and understand our marketplace and reverse
engineer the appropriate selection of KPIs back from there. And to ensure
they are executed we need to have in place an organization design, processes
and other factors that shape the equivalent subculture; otherwise people will
simply do what they prefer to do, rather than what we want them to do, and,
as a consequence the ‘misalignment’ between our strategies on paper and our
actions on the ground will become ever wider.

some eVidence to reFlect on

At the Smart’07 Conference in Sydney in June 2007 I addressed an audience of
some 300 people on the topic of ‘Living Supply Chains’ and what this meant for
designing and operating contemporary high-performance supply chains. At the
end of my address I asked the audience six questions. The results are indicated
below. If this audience is typical, which I think it is, we have a lot of work to do
on our enterprise supply chains. The questions and answers were as follows:

Q1: Has your company/enterprise attempted to design/operate its supply
chain network along ‘alignment’ principles? Yes: 33%; No 67%

Q2: Has your company/enterprise used behavioural segmentation of
customers to inform the design/operation of its supply chains?
Yes 21%; No 79%

‘The “one-size-fits-all” philosophy
is dead forever, and with it

goes all the general approaches
to performance measurement

and management.’

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Q3: Has your company consciously attempted to shape various subcultures

to execute the different types of supply chains (pathways) that are
running through the business? Yes: 32%; No 68%

Q4: Does top management in your company treat logistics/supply chain
management as a specialist ‘function’ or as an integral part of the
business? Yes: 69%; No 31%

Q5: Do you think top management in your company understands
the role culture plays in powering corporate supply chains?
Yes 38%; No 62%

Q6: If no, are they in denial? Yes 77%; No 23%

Perhaps you might like to answer the same questions yourself to get a reading
on how far you are on or off the pace.

notes

1 Adapted from articles in Supply Chain Asia, November–December 2007;
January/February 2008; and May/June 2008.

2 Logistics Recruitment, a Sydney-based global recruitment network, with
offices in ten countries. Logistics Recruitment has recently launched the
world’s first global careers site for supply chain and logistics professionals.
Refer to: http://www.SupplyChainJobz.com.

3 J.L. Gattorna, Living Supply Chains, FT Prentice Hall, Harlow, 2006.
4 R.S. Kaplan and D.P. Norton, ‘The Balanced Scorecard: Measures That

Drive Performance’, Harvard Business Review (January–February 1992),
pp. 71–79.

5 R.S. Kaplan and D.P. Norton, Alignment: Using the Balanced Scorecard to
Create Corporate Synergies, Harvard Business School Press, Boston, 2006.

ALIgNmENt INSIghtS

Humans and their behaviour is what propels supply chains; ignore
that fact at your peril.

Of all the factors that shape human behaviour on the ground, the two
most powerful are ‘leadership’ and organization design. We shall have
more to say about both in the following chapters.

Technology, used in innovative and enlightened ways, is a wonderful
enabler when it comes to operating supply chains; treat it with due
care and don’t have unrealistic expectations of its capability.

Move away from ‘balanced scorecards’ to ‘biased scorecards’ and you
will see immediate improvements in performance.

•

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