Supply-Chain Alignment: Finding Meaning in a Buzzword

By: Robert J. Bowman, SupplyChainBrainRobert J. Bowman, SupplyChainBrain | July 13, 2015

What is this thing called supply-chain alignment?

It's a term that I've struggled with for some years, mostly because consultants and I.T. vendors like to wheel it out to burnish whatever concept or software application they happen to be hawking. It can refer to just about anything, from supplier relations to Lean manufacturing to "pull" distribution strategies. But it seems to acquire the most traction – and lift itself out of the Valley of Buzzwords – when applied to dealings with the end customer.

Here, too, we’re treading on dangerous ground, as we approach that much-overused termcustomer-centric. Often the word can be found etched into a company’s mission statement – you know, that numbingly obvious paragraph that executive teams take weeks to devise, with just enough buzzwords to cram onto the back of a business card. Certainly “alignment” can be one of them, but I’d like to believe that this particular word can have real value, when used to describe something that’s concrete, and directly affects one’s profit margin.

I suspect that John Gattorna was thinking along those lines as he worked on a series of books that examined the makeup and purpose of modern-day supply chains. The Australia-based author and teacher has spent 40 years tracing the evolution of supply-chain management, up to the age of e-commerce and the omnichannel. His latest work is Dynamic Supply Chains: How to Design, Build and Manage People-Centric Value Networks. (Yes, I caught the use of the term “people-centric,” not to mention “value networks,” yet another fruitless attempt to supplant “supply chain,” but bear with me for a moment.)

Gattorna began his career at a time when distribution was considered a “one-size-fits-all” exercise. Factories were tooled up for maximum output, and there was little effort by manufacturers to satisfy the tastes of individual customers. It was a matter of one company, one supply chain.

With the arrival of e-commerce and social networks came an amplification of the voice of the customer, who began demanding products tailored to individual taste. Makers of cars (BMW’s Mini), office furniture (Herman Miller), apparel (Zara) and computers (Dell) scrambled to comply. Product variation threatened to become virtually limitless, but it had to be managed somehow. Suddenly it was necessary to understand exactly who the customer was, and to segment one’s supply chain appropriately. Which raised the alarming question: How many supply chains do I need?

Gattorna sensed this shift in thinking early, employing the term “Living Supply Chains” in the title of a book published in 2006. In essence, he was likening the supply chain to a human central nervous system, which reacts instantly to outside stimuli. Unfortunately, in his travels around the U.S., he couldn’t get companies to understand the meaning of the term. So four years later, when the time came for another edition, he changed the title to “Dynamic Supply Chains.” There, he introduced the notion of “hybrid” supply chains, which can be assembled from different pieces, depending on the nature of the customer base.

In his latest book, he speaks of “dynamic alignment,” and so we come to that mysterious if often-overused word. Today, though, Gattorna means something quite specific by it. Drawing on his work with countless companies over the years, he has come up with five basic types of supply chains, each one geared toward a particular combination of product and customer:collaborative, where demand is largely predictable; lean, where manufacturing and distribution efficiency is the priority; agile, where demand is unpredictable; campaign, for project-oriented goods, and fully flexible, which is called upon only in emergencies.

It all comes down to achieving a granular understanding of the customer – a task that is rapidly becoming more feasible, given the mass of data available through social networks and other uses of the internet. In such a world, alignment isn’t a buzzword; it’s an absolute necessity. An apparel retailer such as Zara, which swaps out its collections every 15 days, couldn’t function without intimate knowledge of what’s happening at the store level.

So in this new world of intensive alignment, how many supply chains do you need? You might be surprised by Gattorna’s answer. “There are 16 potential ones,” he says, “but never in the marketplace do you see more than three or four.” They are based on a complex consideration of cost, relationships and speed.

Supply chains shouldn’t be designed around products, Gattorna cautions. The same items can be purchased in any number of ways. Instead, customer segmentation should be tied to profitability. It starts at the top, with the buyer who places a premium on “speed, cost and creativity.” Then it filters down by degree of profit margin, taking into account the intensity of customer demand and the willingness to pay for premium treatment.

Bottom line: real, workable supply-chain alignment is tied to actual buyer behavior. (Not, says Gattorna, the kind of intelligence that’s derived from opinion-based market research.) A company reexamining its network of distribution centers could discover that costs are too high to support the current level of customer expectation for a given product or region. The exercise might involve shifting some low-value or slower-moving items into centralized D.C.s, while stocking the high-value merchandise in multiple forward locations. One set of D.C.s is lean; the other is agile. Manufacturers and retailers need to know the difference, and act accordingly. That’s lesson number one for taking a dubious word – in this case, alignment – and making it mean something.