Inevitably,
every distribution intensive organization will reach a point when their
warehousing capabilities require a transformation. The need may arise subtlety
over time, such as through a slow antiquation of systems or by reaching
physical capacity after years of steady growth. Or, it may be caused by a
sudden shift in business requirements such as an acquisition of a competitor,
entry into a new market or sales channel, the loss of a key customer, etc.
Whatever the reason, the need for change is inescapable, and supply chain
leaders must determine the most efficient and effective way to plan and execute
the transformation.
Unfortunately,
there are far too many examples of transformational supply chain projects
highlighted on the front page of business periodicals that were poorly executed
and incredibly costly in many ways. Such projects are earmarked by budget
overruns, lost revenue, finger pointing, and even halted careers. Meanwhile,
external partners on these projects often have limited accountability for the results,
get paid regardless, and move on to other projects.
This
article explores the external partner sourcing strategy of a cross-functional,
supply chain project from strategy through implementation. The tenet behind
this paper is that external service providers with an “integrated delivery
model” provide supply chain leaders with an opportunity to more effectively manage
the time, cost, and risk of such projects. These partners have the skills and
experience to lead and integrate the lion’s share of cross-functional
responsibilities throughout the project. And, their approach guards against
siloed, functionally focused communication and accountability, which is symptomatic
of a poorly executed project. In essence, the integrated delivery model offers
a faster, easier, and better approach.
By
way of example, we will use a fictional corporation – Retail, Inc. Retail, Inc.
has grown steadily in a highly competitive market throughout the years.
However, much of the growth has been fuelled by retail demand on the west
coast. Their direct to consumer channel has also become a much a larger percentage
of their overall revenue. Meanwhile, the warehouse systems in their existing
distribution centres have been heavily modified and are no longer maintained
within the license agreements of their software providers. And, their material
handling systems are limiting flexibility and capacity.
As
the supply chain leader for Retail Inc., how would you tackle this challenge?
First, we would suggest you break this
effort into three sequential phases:
·
Strategy
·
Design
and Selection
·
Implementation
Strategy
The strategy phase will define the
most appropriate path forward for the organization based on a combination of
rigorous alternatives analysis, business constraints, experienced-based
intuition, and financial justification. The strategy will provide a practical
roadmap for the future direction of:
·
Facility
location and mission
·
Material
handling equipment
·
Warehouse
processes
·
Warehouse
management and control systems
·
Inventory
investment and deployment
·
Freight
management
·
Labour
management
·
Capital
investment and budgeting
Typically, the strategy phase is
coined as a “network strategy” project. In the case of Retail Inc., the basic
objective is to determine the number, location, and mission of distribution
facilities which will meet or exceed customer service requirements for each
sales channel (retail and direct to consumer) with the least overall logistics
cost.
Developing a comprehensive network
strategy goes beyond the limitations of a deep analytical network optimization
exercise. Multiple functional areas must be involved in assessing the impact to
processes, systems, organization, inventory, etc. However, the entire effort is
often led by an industrial engineering function with the skills to conduct the
quantitative analysis and facilitate the input and analysis from other
functional areas. Other functional areas typically provide support to the
effort on a significant or limited basis.
Design
and Selection
The design and selection phase will
define in detail each aspect of the required transformation in distribution
capabilities. It also includes the selection and contracting of any required
equipment, software, and service vendors. As examples of the design and
selection phase:
·
Project
teams will be mobilized
·
New
site(s), if required, will be selected
·
Material
handling systems will be engineered
·
Equipment
vendors will be selected
·
Warehouse
processes will be documented
·
Warehouse
management and warehouse control systems will be selected
·
Organizational
charts will be developed
·
Management
reports will be defined
In the design and selection phase, the
skill requirements are such that a single functional area cannot adequately
lead the entire design and selection effort. Instead, a designated lead can be
assigned for each major activity, and a program management function can be
utilized to manage integration and communication across activities and functional
boundaries. The program management function also guards against the development
of “functional silos” myopically focused on the results of each functional area
versus a more holistic business view.
Implementation
The implementation phase is the final
step in the transformation. Whereas the design and selection phase defined what
will be done and who will do it, implementation is the “rubber meets the road” phase
when the granular work is performed and integrated across all functional areas
of the project.
As examples of the implementation
phase:
·
Material
handling equipment will be installed
·
Software
applications will be developed, installed, integrated, and tested
·
Standard
operating procedures will be documented
·
People
will be hired and trained
·
Inventory
will be deployed
·
Stakeholders
will be led through any resulting change
The role and focus within each
functional area changes from the prior phase as illustrated by the examples in
the following table. Hence, new project resources are often necessitated during
this phase of the project.
In addition to the more granular level
of detail to define and communicate, the implementation phase involves a
greater number of resources to manage. More detail and more people to manage
places even more emphasis on an effective program management function to
streamline communication processes, highlight and resolve issues, and maintain
project momentum. Hence, program management plays a more prominent role during
the implementation phase orchestrating the integration of schedules and
activity across work streams.
Sourcing
External Resources
A variety of skill sets will be needed
throughout the project from strategy through implementation. So, as the supply
chain leader for Retail Inc. a few natural questions are:
·
“Do
we have these skill sets internally?”
·
“Of
the skill sets we do have, are any these people available?”
·
“Of
the skill sets we don’t have or cannot source internally, where do we go to
source them?”
The truth is that most organizations
cannot afford to have internal resources available to fully support a large
project such as that of Retail Inc. Although a certain portion of the resource
budget within many functional areas may be allocated to project related
activity, rarely does it allow for the resource consuming effort of a network
or warehouse transformation. Inevitably, external expertise and resources are
needed to successfully complete and often lead the project.
Since this is the case, then where do
you go for these resources?
Obviously, your choices are vast and
varied from small boutique consulting shops to multi-national technology and
service organizations. So, you need to whittle the list. Most organizations
start by simply going to external partners they know and trust. This isn’t a
bad start, but it may short change success if these same partners are an ill
fit for the project or provide too few of the required skills. An alternative
tactic is a “best of breed” approach. This brings the obvious advantage of
aligning specific skills to specific needs.
Ultimately, your partner selection
decision should come down to a few simple criteria such as:
·
Expertise
– Who best fills our skill set gap?
·
Simplicity
– What is the easiest way to manage and control the project?
·
Time
– How will I hit my target deadlines?
·
Cost
– How will I minimize project costs?
·
Risk
– How will I mitigate the risk of project failure?
·
Accountability
– How accountable will my partner(s) be for overall project success?
As you can see in the following chart,
Retail Inc. has a variety of options for sourcing external partners throughout
the strategy, design, selection, and implementation phases of the project. The chart
depicts typical capabilities of a service provider as either:
·
Fully
– fully capable of leading the activity
·
Limited
– capable of leading or supporting some but not all the activity
·
Mixed
– Capable on a provider specific basis of leading the activity
·
Blank
– Not typically capable of leading or supporting this activity in a significant
way
A “best of breed” approach would
select the best provider for each activity requiring external sourcing. For
example, an industrial engineering firm may be chosen to do the concept design,
a MHE integrator may be chosen for the MHE selection and installation, and a
WMS provider may be selected for their software and integration services.
Unfortunately, the more narrow the
focus of the selected provider, the greater the need for other providers. This,
of course, leads to a greater risk of information and tasks falling into the
crevices between each internal function and provider supporting the project.
Integrated
Delivery Model
It seems the ideal scenario is one in
which one external service provider can provide all, or at least the vast
majority, of the necessary skill set. This is considered an “integrated
delivery model.” A provider offering an integrated delivery model:
·
Provides
the expertise where needed from strategy, to design and selection, through implementation
·
Is
simpler because there are fewer external partners to manage
·
Is
far more able to control the time, cost, and risk of the project
·
Takes
on lion share accountability for overall project success
A service provider with an integrated
delivery model can lead major streams of activity across an entire network or
warehouse transformation project from project onset to post-implementation support.
And, they have proven methodologies and experience in assessment, design,
selection, implementation, support, and program management.
Examples capabilities of an integrated
delivery provider include:
·
Assess
– facility layout, operational performance, capacity, network strategy
·
Design
– concept layout, mechanical and controls engineering design, operational
design, WM and WCS requirements
·
Select
– equipment selection, system selection, 3PL selection
·
Implement
– MHE integration, WM integration, WCS integration, training, operational transition,
functional and operational readiness testing
·
Support
– warranty maintenance, troubleshooting, and periodic assessment
·
Program
Management – project management, communication management, issue resolution
Further, the methodologies and
processes within the service provider organization are integrated such that
communication and handoffs from function to function and phase to phase are
streamlined.
Why
Seek an Integrated Delivery Partner?
There are multiple hand-offs and
integration points throughout a cross-functional, multi-phase transformation
project, as illustrated in the following diagram.
With each hand-off from activity to
activity or function to function there is risk of information getting lost or
poorly translated. Service providers with the experience and skill set to lead
multiple work streams from onset to implementation are less likely to fumble
along the way.
Further, as we know, project work
streams cannot successfully operate and make decisions within a vacuum. The entire
project must be managed and executed with a holistic view of the project using multiple
“lenses.”
Multiple Lenses
Required to Create Holistic View:
Functional Lenses:
·
Sourcing/
Procurement
·
Merchandising
·
Planning
·
Inventory
Management
·
Information
Technology/ Systems
·
Transportation
·
Warehousing/
Distribution
·
Customer
Service
·
Human
Resources
·
Finance
·
Legal
Business Lenses:
·
Service
·
Cost
·
Revenue
·
Key
Metrics
·
Risk
Organization Lenses:
·
Resources
·
Skills
·
Accountabilities
Stakeholder Lenses:
·
Corporate
·
Customers
·
Suppliers
·
Service
Partners
Without a holistic view to ensure
design decisions for processes, equipment, and systems are in synch, then gaps
are inevitable. Processes might be defined for system functionality that
doesn’t exist. Equipment might be designed without the flexibility for expanded
future process requirements. Systems might be developed or configured based on
assumed versus actual needs. Training and testing might both focus exclusively
on new technologies and ignore the procedural aspects of a “day in the life” of
an associate. And, “go live” might take place without fully preparing corporate
and business partner stakeholders for the impact it will have on them.
Unfortunately, when examples like this
happen (i.e. when processes, systems, and equipment are not tightly aligned
throughout the project) the results can lead to a poor post go-live start up,
as typified by the “J-Curve” in the following illustration.
The performance dip illustrated in the
J-Curve can lead to budget overruns, service disruptions, and lost revenue. An
integrated delivery service provider with the experience and skill set to lead
multiple work streams minimizes this risk.
Summary
There will come a point in time within
every distribution intensive organization when a conclusion is reached that
incremental change in distribution capabilities is not enough and that a major transformation
is needed. But, rarely are internal resources with the required skill sets
available to support such projects in an adequate way. Hence, a supply chain
leader must seek external support to successfully manage, design, and implement
the program.
An array of service provider options
will always be available from single person shops to multi-national consultancies
and integrators. The key is to select as few providers as necessary in order to
control time, cost, and risk. Service providers offering an integrated delivery
model provide the experience and skill set to manage and lead multiple work
streams from project onset to implementation. Therefore they are able to
minimize the number of providers and cross-organizational hand-offs (and potential
fumbles) along the way.
So, as a supply chain leader tasked
with leading a transformational effort, consider a service provider offering an
integrated delivery model. It’s the faster, easier, and better approach.
Contributed
by Marc Austin, Managing Director Fortna
EMEA (Pty) Ltd
