Is supply chain management a strategic function best kept close to the center of corporate power or a support function better delegated to local business unit owners? This question has no clear answer and yet we keep asking because there are penalties for overdoing it either way.
Go too far in the direction of centralization and those closest to the customer often gripe about bureaucracy hindering flexible responses needed to win business. Decentralize too aggressively and costs get out of control as standards erode. It’s often described as a pendulum that swings back and forth in time, but is this instability inevitable?Center Led is Best of Both Worlds
An interesting test case of contrasting approaches to this question of organization design can be seen in the example of January’s blizzard and the responses of two prominent northeast airports: Boston’s Logan and New York’s JFK. The storm dropped a foot of snow on the region and both airports closed briefly in response.
The recovery, however, was very different and at least one journalist concluded that much of the reason was tied up in management structure. Boston has a strong central leader in the person of Ed Freni. Freni is Director of Aviation for Massport and in this role chairs a daily morning meeting comprising all terminal operations leaders, airline management and others. Each of these has his or her own local duties, but collectively they orchestrate the system. Boston was back up and running 24 hours later.
In stark contrast, JFK suffered for days with lost bags, cancelled flights and utter confusion that made news around the world. Its failing, according to the New York Times, may have been an over-reliance on delegated authority to airlines, third-party contractors and individual terminal management teams. What broke down in this case was communication, accountability and the ability to collaborate across disparate teams who share essential resources including gates, runways and equipment.
The eternal question of organizational design and supply chain was illuminated for me in a quote from Massport’s CEO Thomas Glynn who observed, “Top-down management is sort of out of fashion these days, [but it] works here because people have respect for those at the top.”
Don’t Fear the Matrix
SCM World surveyed over 1,000 supply chain executives on their approach to supply chain organizational structure in 2015. The data showed a strong preference for managing certain functions centrally, most notably strategy, with varying degrees of decentralization across other areas of supply chain management. The aggregate responses may reflect lessons learned in the JFK vs. Logan example in that central authority is prized when the task is orchestrating work across functions, but not so important when it comes to simply doing the work as in manufacturing, logistics and demand planning.Delegation seems to have gone too far at JFK, leaving top management (the Port Authority of New York and New Jersey) ill-equipped to respond to crisis at a system-wide level. The missing ingredient was strategy at the top. Boston, in contrast, had a strong voice of reason with full visibility to conflicting priorities, resource constraints and ultimate objectives at the highest level.
In supply chain terms this kind of capability is often instantiated with a matrix structure or even some kind of center of excellence (CoE) organization. The approach works best when the team is led by a strong, respected individual with direct line authority to the chief executive and a substantial team that is deployed within business units driving specific change initiatives hand-picked from above.
In part these kinds of matrix structures excel at developing strategy, but in addition they provide a venue for effective crisis management. Companies as diverse as Samsung, BASF and L’Oréal use versions of this approach to continuously innovate with direction from above, but maintaining respect for local business unit needs. Many (including Unilever, Colgate-Palmolive and Microsoft) also have technology supported control towers for better real-time visibility to problems while there is still time to respond.Resilience Matters
As JFK learned, strong central leadership is essential in times of crisis. Don’t wait for trouble to learn how true this might be for you.