A common supply chain model in large, integrated multinationals, is a network of Plants serving many markets. Each Plant makes products for many Markets; and, in each Market, a Commercial Unit brings products from multiple Plants into a single Market. In the Generics Pharmaceutical industry for instance, all the top players function this way.
This model is motivated by the challenge of managing the allocation of capacity of Manufacturing Plants to service the needs of many markets. A Global Supply Chain group gathers demand from multiple markets and then plans supply for the many Plants in the network. Sometimes, this is done at a Regional level (e.g., North America, Europe, Asia-Pacific) but the model is the same.
This model of many plants to many markets with a central unit in between has always bothered me. The problems I’ve seen with this model are various but here are the main ones:
- Markets may need the same things but in different ways and at different times. The centralized approach is too rigid to cope with the diversity of needs and indeed the different rhythms and dynamics of different markets.
- The model is way too slow to react to changes in market demand. Sure, there are escalation mechanisms and often there are individuals in the Global group dedicated to each Market but the process to go from a Customer to the Commercial Unit back office to the Global team to the Plant and back is too slow.
- Plants become ‘distant’ from Markets and from the Customer reality. Plants become accustomed to and rely on this monthly process where they get consolidated demand forecasts and make a plan therefrom. As such, they don’t interact directly with the reality of market dynamics, which doesn’t move in monthly events.
- These Global, centralized models are fine in product lines that service markets where demand is very stable. In my experience, there are few of these left. Market reality, pretty much everywhere, is complex, customers are demanding, and demand may shift suddenly and unpredictability. A centralized model on a monthly cycle will have a really hard time coping with market volatility.
Notwithstanding the obvious flaws of the centralized model, I am not surprised that it is adopted so ubiquitously by global supply networks. In the absence of new ideas, this is probably the best that people can do.
Since the emergence of the 20th century vertical corporation, the only organization model that most people know is the hierarchy – functional or otherwise. If your paradigm is hierarchical, you will inevitably drift towards a centralized approach to this problem of many Plants for many markets.
But there is a different way. To understand it, you need to open your mind and realize that there is now an alternative to the hierarchy – it is the network.
This may be hard to conceive, but it is actually possible to have many plants working directly with many markets without everybody getting confused. I know, there are challenges that don’t seem possible to overcome without a central unit: if a Plant doesn’t have enough capacity for two different markets, who decides which market gets priority? How do “we” know that the choice, in this case, follows corporate priorities or strategy or policy?
How about we take a closer look to how a network of people works and how it would manage this situation.
The first thing to come to grips with is that in order to deal with random issues popping everywhere, people don’t need these issues to be packaged neatly into agendas in order to solve them. They really don’t. A command and control structure only knows how to solve problems through the involvement of authority. Somebody with authority has to make decisions; has to decide who does what; has to orderly bring together the right people; etc. This is how a hierarchy moves. But people – competent people with the talent and knowledge to solve problems – don’t need this guided approach. We make them think they do because that is the premise of the hierarchical model, but they can function far more effectively outside of this authority-driven workplace.
A network of people who are aware of one another and confront problems – the kind of dynamics we see in social networks, can spontaneously establish action pathways by combining their knowledge and skills in whatever way the problem at hand stimulates. It’s a fact. This is how people behave in a network – they react to a problem by combining their skills; they combine their minds to figure out what to do. There is no need for authoritarian guidance.
How then would we use this dynamic response capability in the case of many Plants serving many Markets? I’ll list the basics:
- Well… what do we need to do in a Supply Network? We need for multiple requirements to reach multiple supply chains – since pretty much each Plant is a supply chain.
- Ok, then: we need people who know the demand from markets; and we need people who know how to plan requirements for Plant operations and Suppliers in response to demand from markets.
- On the Demand side, set-up a team of Demand Managers who plan, monitor and adjust plans related to one Market – one team per Market.
- On the Supply side, to the extent that Supply comes from individual Plants, set-up a team of Supply Chain Managers (or Planners, if you prefer to call them that) for each Plant. Each team develops and manages requirement plans for Plant Production and for Suppliers of source materials.
- The teams in each Market are connected to other resources involved in monitoring and quantifying market demand: Product Managers, Sales Reps, Regulatory staff, Distribution teams. All these resources constitute a Community focused on serving that Market. So, one Community per Market.
- Likewise, the Supply Chain Managers of each Plant are surrounded by other people who are involved in the planning of what Plants and Suppliers do: Production Planners, Buyers, Quality staff, etc. Thus, these various resources also constitute a Community focused on the supply chain anchored on that Plant.
- Now you network these Communities. It’s important to note, however, that Communities don’t function in monthly cycles – or any cycles. Communities function in Now Mode, event by event. If there is an event in the Market that affects the Demand of a few products, Communities will react to and act upon that individual event – Demand Communities and Supply Communities – Event by Event.
- You should use Social tools to enable these interactions. The way you do it is as follows:
- One Group for each Demand Community; one Group for each Supply Community.
- In each Demand Community, you would have one or more members of each Supply Community (normally the Supply Chain Managers of each Plant).
- In each Supply Community, you would have a member of each Demand Community that sources from that Plant (normally Demand Managers from the Market).
- When Demand Events surface in a Market, those Events are posted and discussed in the Community of that Market. The Supply Chain Manager from the Plants that supply the affected products would take the issue to their respective Communities and post the issue therein. Then, they would bring back feedback from their supply chains to the Market community.
- This may sound complicated but it isn’t because we are dealing with one Event at a time as the Events take place. We’re reacting to Events in Now mode. When a market Event occurs, for instance, the flow of communication through the Demand Community, up to the Supply Communities and back, is very fast – faster than if you have to go through monthly cycles. All the right people respond and things get resolved quickly.
- Demand Plans are always up to date; so are Supply Plans. Supply Chains adjust to market needs a little bit at a time, constantly. There is no need for a monthly meeting – it’s all taken care of as it happens.
With this rapid and dynamic model, supply will be in tune with market realities, no matter in what combinations the alignment needs to occur. Plants will be closer to the markets they serve and they can structure themselves so that they can respond to the diverse challenges of multiple markets.
This is a far better way to manage a Global supply network than by means of centralized control – way better. It enables a real time organization; it allows large Enterprises to remain agile in spite of their size.
It is the Supply Chain of Companies of Tomorrow, Today.
P.S. In reading this article, you may have trouble reconciling what I describe above with the reality of traditional S&OP processes. If you want to know what I think about S&OP, read this… Maybe it’ll provide some answers.