Supply chain leaders are well aware of the consequences of disruption on their physical networks — frequent and rapid changes to manufacturing locations, the supplier base and warehousing and transport networks. These physical changes to the supply chain are decided by cold calculations of cost, margin and risk — but Gartner clients are struggling with the subsequent questions these changes raise around organization design:
- Does the organization’s structure need to change along with the network?
- Do roles need to be relocated?
- Should roles and teams be located close to where physical work is done to be more customer-centric?
- Or is it better to co-locate roles and give them global scope to maximize scalability and efficiency?
Gartner research can help answer these questions. I recommend clients use our Four Layers of Capability model to assess the need for organizational change as a result of network redesign (see Figure 1).
Let’s start with the operational layers — Execute and Orchestrate — the roles and teams that co-ordinate and complete operational transactions to get products made and delivered.
The no-brainer here is that roles working with physical product — e.g., production, packaging, warehouse and transport roles — need to be on site whatever way the network changes. Factories, warehouses and transportation depots need to be staffed accordingly by your organization or outsourced providers.
But what about operational roles that do not directly engage with the physical product — e.g., planners, buyers, customer-service representatives? Should they also be on site, in country, or can they be located in regional or global centers? To answer this, apply the following three questions to each role:
- Is local execution necessary to ensure the right speed of decision making and action?
- Are there strong compliance, regulatory or cultural reasons to locate roles in a specific geography?
- Do the benefits of local execution outweigh the loss of scale benefits that could be gained from co-location at a global or regional level?
If the answer to any of these questions is yes, then new nodes in the physical network will require operational staffing in, or close to, those locations. If not, consider locating these roles and teams in global or regional centers which achieve scale benefits — greater ability to maximize utilization of a highly capable pool of resources; lower costs of headcount, IT and real estate.
Govern and Adapt Layers
Roles and teams in the Govern and Adapt layers of capability make decisions about how the future supply chain will operate and how to get to that state. The Govern layer consists of heads of supply chain roles, heads of function and members of governing councils or committees. The Adapt layer is populated by roles such as process owners or innovation leads, grouped into teams such as Centers of Excellence and Business Process Improvement.
These roles are often part of centralized organization structures, located in global or regional offices and, increasingly, in virtual and remote settings. So, it is tempting to consider them immune to network changes — surely this kind of work can be done anywhere in the world, leveraging all the advantages of collaborative technology?
Not necessarily. I have engaged with organizations thinking very carefully about where to locate these roles and teams. Here are a few reasons why supply chain network changes alter the location and distribution of Govern and Adapt roles:
- Regionalization of the organization and its ecosystems changes the balance of global versus regional Govern and Adapt roles in favor of regional structures.
- New strategic partners and stakeholders emerge and proximity to them becomes an enabler of innovation and development (e.g., university partnerships for technology, NGOs for sustainability).
- An organization’s increased presence in a location opens new opportunities regarding the availability, quality and retention of talent.
- Developing resilience and responsiveness to disruption entails a wider spread of decision-making power through the supply chain organization, resulting in Govern-focused roles in new locations.
In summary, changes to supply chain networks alter the dynamics of supply chain organization design. Supply chain leaders need to know which roles and teams are impacted, determine if organization redesign is necessary and, if so, act to optimize their organizational structures.
Here’s a recommended action: apply the Four Layers of Capability model in tandem with the drivers of co-location of work, as found in these two pieces of Gartner research: Design 4 Layers of Capability Into Your Supply Chain Organization Structure and Use These Drivers to Assess Whether to Centralize or Decentralize Supply Chain Functions.
Senior Director Analyst
Gartner Supply Chain
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