- Neil James
4 Reasons Why Cross Functional Collaboration is Critical for a Modern Supply Chain
Supply chain blogs and articles have become increasingly dominated with debate on how to best manage the risks and opportunities of an operating environment becoming more volatile, uncertain, complex and ambiguous (the so called VUCA challenges). This often leads to discussion on the tools, technologies and processes which can help businesses adapt and succeed.
There are undoubtedly many approaches on offer (for example the array of emerging technologies described collectively as supply chain digitalisation) which promise important business outcomes. However the impact of many, if not all, of these approaches goes far beyond the supply chain function and genuine cross-functional collaboration will be needed to realise their benefits.
This is very challenging for the majority of organisations. The traditional organisation design still in place in most organisations is based on functions, with each function developing towards its own siloed version of best practice along with an enterprise effort (which may or may not be formalised or even recognised) to manage the interfaces across functions to actually deliver value in the market.
There are 4 key reasons why modern supply chains need to address this challenge now;
1. Differentiation is Driven by End-to-End Capability
By definition, genuine end-to-end capability which delivers the profitable development and execution of corporate strategy is cross-functional. The effective alignment and synergies required to practically deliver value to customers demands strong partnership for example between R&D, marketing and the supply chain. Intuitively one would expect, therefore, that the companies who most effectively address this challenge differentiate themselves in their ability to execute strategy.
Recent research confirms this expectation. Leinwand and Mainardi studied organisation design across major companies and found that functional boundaries were a barrier to building the differentiated organisational capability that consistently delivers superior performance. They observed that a common finding in companies that have built these distinctive and differentiated capabilities is that they have found sustainable ways of working across functional boundaries. Examples cited are IKEA’s product design process which involves design, sourcing, shipping, manufacturing and customer insight and Apple’s user interface design incorporating customer insight, engineering, manufacturing, marketing and distribution capabilities.
Clearly, this creates a strategic imperative beyond the supply chain for cross-functional excellence within the enterprise. However, as the supply chain has often worked as a ‘back-office’ or ‘arms-length’ support function in many sectors, considerable development is required to now build the capabilities in current and future supply chain teams and their leaders to meet the needs of enhanced cross-functional collaboration.
2. Increasingly Dynamic Environment
In recent years, there has been significant comment in business and academic journals on the growing volatility, uncertainty, complexity and ambiguity in the operating environment. This so-called VUCA world is one in which companies are increasingly forced to develop new capabilities to adapt, compete and ultimately to survive.
The traditional organisational model of specialised functions which, when needed, work across interfaces on enterprise goals is not well-suited to rapid response to the complex and unexpected challenges of the VUCA world. Whilst disciplined processes such as S&OP or IBP may be in place (and research shows that even such long-established processes deliver to expectations in only 20-30% of organisations) they do not necessarily create the flexible and responsive joint-working values or capability to build rapid enterprise-level solutions.
In the VUCA environment, the ability to predict opportunities and risks and to then build new capabilities is critical. Traditional organisation designs are also not optimised to meet this need. S&OP/IBP processes in practice are often limited to a focus on meeting short-term challenges and tend towards transactional discussions and actions rather than a more open, cross-functional sharing of insights from across the functions which offer the most comprehensive view of the holistic operating environment and the strategic capabilities the organisation needs to build.
It is clear that a linear evolution of traditional ways of working that were originally conceived 50 or more years ago will not meet the rapidly evolving requirements of the VUCA environment (for example, chasing forecast accuracy gains to improve supply chain planning is unlikely to deliver major improvement in an environment characterised by volatility). Whilst innovations in supply chain processes (eg demand driven supply chain management) will undoubtedly support the change needed, new practical approaches and beliefs to working across functions will be needed to enable them.
3. Technology Drivers – Supply Chain Digitalisation
There is currently also significant discussion on Supply Chain Digitalisation (SCD). SCD typically refers to the multi-dimensional opportunity presented by applying a range of emerging digital technologies. These include for example Big Data, the Internet of Things (IoT), Artificial Intelligence, advanced analytics and cloud computing. When leveraged in the supply chain they provide the potential to refine and enhance existing processes but, more significantly, to completely redefine business practices to increase competitive advantage.
A frequent feature offered by these technologies is new information on market and customer needs based for example on real-time usage, either from point of sales (POS) technology or even from product usage data collected from a product itself. Whilst this additional data provides the potential for a business to understand the market more deeply and to predict, prepare for and shape market opportunities, many organisations already find it very challenging to deal with the vast array of data they already hold (for example in S&OP or IBP processes).
In order to realise the full potential of such SCD opportunities, companies need to develop ways of working which facilitate information sharing, discussion and enterprise decision-making which utilises their full cross-functional capability in order to make holistic, system-wide decisions. They will also need to operate these processes much more quickly and fluently than is typically seen today in S&OP/IBP monthly cycles as the SCD enablers will provide real-time insights on opportunities and risks which market leaders will undoubtedly act upon rapidly.
4. Strategic Positioning of the Supply Chain
As outlined in (1) above, the supply chain function has often been positioned as a ‘back office’ support function and consequently is seen as a target for cost reduction rather than as a primary strategic capability which when fully integrated with functional strengths across the business, creates a differentiated and powerful business driver.
In order to realise the full strategic potential of the supply chain, it is essential that supply chain leaders are able to build a clear understanding of evolving corporate strategy and create a clear and compelling strategic vision for the supply chain within that. This requires supply chain leaders (and subsequently their teams) to engage fully across functions to take ownership and really understand the challenges and opportunities at the enterprise level. The risk in not shaping this future strategic role of the supply chain is that the focus on supply chain remains as a back office support in which delivery to plan at minimal operating cost is the key area of attention.
Now, more than any time in the last 10 years, supply chains are being challenged to meet increasingly tough demands to deliver excellent customer service in a complex and unpredictable environment. Technology drivers such as supply chain digitalisation present new enablers for business but also challenges in how to harness them in a complex cross-functional organisation. However, for both the supply chain function and the broader enterprise it is critical to address these challenges in a holistic and cross-functional manner, with research demonstrating clearly that sustainable differentiation and excellent performance are directly driven by strong cross-functional collaboration built firmly not only in processes but in the ethos and values of the company.
Insights on how to pursue cross-functional excellence have been outlined in several of my previous articles. My next series of articles will feature insights both on tools to support supply chain planning in the VUCA environment and on effective change approaches to secure the cross-functional collaboration to fully realise their benefits.
 Strategy That Works (2016), Leinwand & Mainardi