Roddy Martin, senior vice president, global supply chain at Competitive Capabilities International, shares his thoughts on how maturity influences the ability of a business to successfully transform itself and its supply chain.
Companies have engaged globally in continuous improvement initiatives for many years without reporting record-breaking business results across the end-to-end business system. None of these initiatives were “wrong”, but improvements happened in pockets and did not apply to the entire system or supply chain.
Silo-thinking and functionally focused project efforts made results not sustainable and holistic enough to achieve overall improvements in business performance by involving people, process, and technology (all the key points of the Jay Galbraith model).
- IT delivered transaction processing efficiency and integrated data management but wasn’t necessarily connected to the end-to-end supply chain process.
- Lean initiatives delivered cycle time improvements and operational efficiencies but didn’t necessarily deliver organisational design and profitable processes from the customer back to supply.
- Six sigma delivered operational reliability but wasn’t necessarily used in improving perfect order performance at the customer hand off.
- Organisational design structured the business around operating strategic priorities but didn’t continually adapt this structure and skills to different stages of performance improvement maturity.
These improvement efforts were not holistically applied and strategically managed from the top down and didn’t translate into the end-to-end business process network. They were not well aligned with IT and change management either.
However, companies like Procter and Gamble manage to succeed by basing their business operating strategy on the principle of a demand-driven value network (or consumer-driven supply network – CDSN in P&G language). P&G achieved phenomenal business results because its process is holistic, endto- end and based on building maturitybased processes.
P&G’s CDSN starts at the point at which a customer chooses or buys a product or service and ends in the network at the point that supplies the product or service. Because of its leadership and performance maturity, P&G’s improvements start at the shopper and go back down the demand management system into the supply network. They involve an aligned combination of people, process, and technology.
Even the business vision in P&G is focused on shelf availability. Systems and networks are designed and improved on the basis of shelf back efforts and priorities.
Sadly, many businesses have in contrast applied techniques, methodologies and initiatives in silos, which has led to increased complexity (with results also segregated in silos) rather than driving the end-to-end business capability that delivers profitable perfect orders with less working capital. In addition, being able to sustain performance improvement even when demand suddenly changes requires the supply system to adapt quickly and reliably.
The demand-driven value network is the set of holistic end-to-end business process management capabilities that start at the customer and buying point and end in the supply system. These process capabilities focus on achieving the following:
- Accurately sense and characterise demand at the point of purchase;
- Reliably make and supply to demand;
- Make balanced process-based trade-offs to profitably meet commitments in processes such as sales and operations planning and integrated business planning;
- Understand buying and demand patterns so well that innovation and demand shaping are focused on creating demand and growth.
Leading companies benefiting from these activities have taken many years to develop the maturity in their end-to-end process capabilities and operate as a DDVN. Those successful on the journey have seen that a few core capabilities are fundamental to the successful transformation of the business:
- Measuring the right metrics;
- Customer back process orientation;
- A culture of continuous improvement and change management;
- Goal, talent, and structural alignment.
Leaders of these successful companies accept that sustaining performance and building capabilities is a change leadership transformation journey; and that companies must move through stages of maturity to build the foundations of sustainable performance improvement and demand-driven processes.
The slide shows a five-stage journey of performance maturity :
- In Stage 1 companies react to problems without a systemic capability or processes for performance improvement;
- In Stage 2 companies build projects with experts to solve problems (e.g. quality, demand forecast accuracy, lean). The issue is that a collection of projects on its own is difficult to manage and build end to end process value network capabilities;
- In Stage 3 integrated functional processes are created around core business processes but they are not holistically end-to-end and demand driven as described (for example quality or demand planning). This is however the first transition to process-based operations and a cultural shift (necessary but not sufficient);
- In Stage 4 the company unconsciously operates as an end-to-end demand driven network. All aspects or people, process and technology combine holistically to create a culture of performance improvement. This stage is the big cultural jump (for example P&G operates at a 4.4 as scored in CCI Integrative Improvement benchmarking efforts);
- In Stage 5 the business operates as an end-to-end demand-driven value network focused on translating value from demand into the business.
Without knowing a company’s stage of maturity and approach to performance improvement, it is easy to design Stage 4 and Stage 5 solutions and drop them onto a Stage 2 organisation, which is not ready.
As a result, many of the benefits and gaps to advancing capabilities are masked within disconnected projects and processes in Stage 2 and progress is difficult. The net result is that the advanced Stage 5 scope is adapted to fit the comfortable Stage 2 of maturity and then gets “stuck” and gets complex. This is particularly true for large scale ERP projects that are designed as Stage 5 configurations and deployed in a Stage 2 organisation with high degrees of customisation to “make it work”, which ends up being a barrier to improvement.
In order to realise sustainable business benefits from integrative performance improvement initiatives, a company must ensure that the current stage of maturity is understood and the end goal in terms of capability is understood. This determines the scope of the performance improvement journey.
If the scope of current maturity is clear and there is an end state capability in mind, the transformation journey can be mapped, prioritised, and led by leaders. Importantly, this stage-based journey can be tracked and adapted to encompass even deeper change as the performance improvement capabilities improve and the business is at a better level of readiness to leverage them.