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The future of the supply chain business structure

Supply chain business structure Prological

Prological’s Paul Erokhin, General Manager for Australia & New Zealand, discusses the importance of supply chain units within an organisation’s overall business structure.

Paul Erokhin, General Manager for Australia & New Zealand at Prological, notes that historically supply chain has been seen merely as a “servant to sales” and other departments within the business structure.

Educated as a chemist, Paul worked 15 years in supply chain roles and has been a consultant for an additional six.

“When I started out, supply chain was indeed simply something to serve sales or marketing or manufacturing,” he says. “I used to get questions like ‘How do we run out of stock?’ ‘Why have we got too much stock?’ ‘Why are our freight costs so high? Why do we have so many staff in the warehouse?’ and so forth. There wasn’t a fundamental understanding that what occurs operationally is a consequence of what is promised upfront.”

Although doubtless accelerated by COVID-19, Paul says there was even before that a steadily growing realisation that supply chain in and of itself served a vital role within the organisational structure. 

“It’s been a steady path to realising its importance,” he says. “Senior supply chain managers have gradually worked their way into strategic discussions and towards a seat at the board table. Perhaps part of the reason it has been gradual is that supply chain capability was traditionally grown through experience – until recently professionals hadn’t formally studied supply chain; they just worked it out.” 

Tertiary educational study of supply chain has been a positive development, in Paul’s estimation. “It readies new entrants to the field with an overall contextual grasp of the domain,” he says. “Now when a graduate hits the floor, I think they have the capacity to learn a lot quicker – to situate their immediate practical work in a broader framework.”

However, while Paul is impressed by the quality of talent among new tertiary-qualified supply chain professionals, the demand still far outstrips the supply.

“There are so many options for the talented young supply chain professional,” he says. “There’s lots of money being tossed their way in a very competitive and challenging environment. Because the environment can be so trying, I think everyone needs to be a little more careful about securing their talent with proper pay rises and perks.”

OLD DOGS, NEW TRICKS

So – supply chain as a business unit is increasingly emphasised as important within organisational structures, and the next generation may be better prepared than the last, albeit talent is in short supply. But what role does Prological play in shifting organisational perspectives in favour of supply chain?

“With the rise of supply chain within organisations, we’ve had to face the fact that traditional supply chain managers often come from a different angle to other business leaders,” Paul says. “The risk is that the supply chain manager and the CEO end up talking past each other. Because supply chain has been a practical hands-on role, with managers working their way often from the warehouse floor up, these managers don’t always possess the right soft skills to communicate effectively up and down the management hierarchy. There’s a real educational journey you need to take some of these old school supply chain people on to understand and work effectively with non-supply chain people.”

On the CEO side, Paul says that Prological coaches CEOs of very large companies on the importance of supply chain and why it needs to be involved in top-level decision making – because it is crucial in informing a company’s strategic direction.

CEOs often know they must better incorporate supply chain thinking at the top, they just don’t know how to do so. So, they reach out to Prological. 

“Often this realisation is connected to a more immediate business problem related to supply chain,” he says. “There might be a directive from a CEO saying, ‘I know we can’t do this ourselves. Go and get some external expertise.’ This in fact happened when we were working with a major e-commerce retailer on improving their warehousing network strategy. They didn’t have the capacity, and in some technical areas, the capability to devise and deliver the solution internally.” 

Prological
Paul Erokhin, General Manager for Australia & New Zealand at Prological.

Paul says that working with the retailer meant helping to guide them in thinking about their distribution strategy’s relationship to overall company strategy. 

“Our job was to get them thinking about their company strategy as it stood, and its impact on their network strategy,” he says. “Then, thinking about what the best distribution strategy is over the specified time horizon, we then had to help them think about whether a new network strategy spoke directly back to the company strategy. It’s a two-way street. Supply chain strategy must be developed in conjunction with business strategy.

“Depending on the type of business, the supply chain strategy might even be a dominant theme. After all, ultimately it’s about delivering on your promise to your customers – and you can’t deliver on that promise unless you can physically deliver the goods.”

GETTING LEAN

Another key concept for Prological is the development of “lean” operations in supply chain. Paul elaborates on the meaning in this context.

“We’re not here speaking of ‘lean’ as we’d use the term in the manufacturing setting, for instance,” Paul says. “What we’re speaking about is capabilities increasing, but the headcount isn’t. Often businesses have people that are quite capable of understanding what needs to be done or figuring out the problems for themselves – they just don’t have the capacity to do so. Prological can help in providing that extra capacity.

“On the flip side, we work with hundreds of different businesses. We’ve seen a lot that can be applied to a situation drawing from our vast and deep experience in similar and different industries – and for many the notion of ‘lean’ in supply chain operations is something new; it’s not something they’ve done before.”

Paul says that Prological has a lot of “tools in its kit” that others haven’t seen before. 

“As consultants we can add value with a different point of view, a fresh set of eyes. We’re not shackled to the prevailing norms within a business environment. Sometimes a client will have a list of constraints to change – 0ften quite legitimate constraints – but we come at challenges without those constraints being set in stone. It’s up to us to ask, ‘How do we effect change within these constraints?’ or ‘Can we just do away with these constraints altogether?’ 

“We want our clients to have the best access to new opportunities, and sometimes that can’t be done without external assistance that isn’t weighed down by intra-business political considerations – or inherited legacy considerations and that sort of thing. 

“Prological will conduct its reviews and analysis without being hidebound by any unnecessary priorities that distort what ‘good’ might actually look like for an organisation. And that’s a real value-add for many organisations.” 

For more information on Prological Consulting, click here

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