Supply chain organizational design is becoming necessary since business as usual doesn’t work anymore — global supply chains are threatened by calls of protectionism, product complexity is leading to an explosion of SKUs, and technology-enabled supply and demand are imparting a formidable speed to businesses.
Organizations that are traditionally structured by functions typically have silos that are efficient, but do not support speed very well. In SCM World’s Innovation Success Rate report, we discussed the “integrated organization,” where silos are broken and all functions work together in an open and collaborative environment.
Our research shows that only 31% of organizations are fully integrated today, while the majority sit somewhere in between linked and semi-integrated. The same survey confirms a completely different picture for the most innovative organizations: two-thirds (67%) are integrated, demonstrating a correlation between innovation and integrated organizations.
Included within that two-thirds is clothing retail giant Zara, whose supply chain speed is admired (and copied) not only by competitors but other industries as well. The key enabler of Zara’s “fast fashion” capability is an agile supply chain built on a deeply collaborative working environment connecting designers, planners, merchandisers, product marketing specialists and production staff, many of whom are co-located.
Organizational Design for Integrated Businesses
Many community members are designing end-to-end supply chain processes that can connect multiple functions, therefore breaking silos while preserving functional alignment.
For example, L’Oreal structured its supply chain in three integrated groups. The manufacturing supply chain group deals with production and supply. The customer supply chain group deals with demand management and aftermarket service. In between, the pivotal market supply chain group oversees planning, inventory, distribution and overall performance.
Although the customer supply chain reports directly to country managers and the manufacturing supply chain has a solid-line relationship into plant managers, they both have a dotted-line into the market supply chain. This structure allows both the customer and manufacturing supply chains to focus on their own success within a coherent end-to-end structure.
Similarly, Colgate Palmolive created global category supply chain teams, each managing plant operations, direct material sourcing, packaging and engineering for clusters of products. The commonality of materials, manufacturing technologies and demand patterns allows for maximum leverage in supply chain.
The secret sauce for making this globally aligned, locally connected supply chain organization work is a dotted-line relationship for the global categories into the customer service and logistics function, which delivers to retailers and other channels. The net effect is a highly-leveraged global supply chain structure that remains sensitive and responsive to local market and customer requirements.
The efforts that these and other organizations are putting in place to create end-to-end supply chain processes often leads to matrix organizations that offer the right trade-off between the benefits of purely functional organizations – control, scale, cost reduction – and those of purely end-to-end organizations – responsiveness, service levels and customization.
Our research, however, does show that matrixed management structures are less common (21%) than those that are purely functional (55%), except when looked at by company size. There is a clear pattern for larger companies to use matrix organizations, with implications that bigger businesses can more easily leverage dual reporting lines.
How to Make Sure That Matrix Organizations Work?
Historically, everyone working in an organization was required to be great at just one thing. Roles like product design, sales and manufacturing all needed depth of functional expertise from their people – often referred as “I” shaped people to resemble functional organizational structure.
SCM World data shows that cross-functional skills are instead expected to top the skillset requirement for supply chain executives by 2020, along with general management and leadership skills.
Indeed, matrix organizations require multidisciplinary people who possess a depth of cross-functional expertize in multiple areas – or “T” shaped people.
Finally, when the skillset is extended to depth of functional expertise across multiple areas, people become “M”shaped, meaning they thrive as a member in a high performance cross functional team. They are the “connective tissue” between functional specialists and can be the leaders able to make a matrix organization work as a clockwork.
It is crucial for enterprises to encourage supply chain employees to move from “I” to “T” to “M” shape skillsets. Within this group of workers, aim to inspire confidence to explore the new depths of functional expertise, and build a work environment that strongly supports M-shaped workers who represent the future of your supply chain and company success.