Communicating with a large number of trading businesses not only on the Russian market, during basic screenings and audits, I identified the main types of pain:
Lack of consistency between supply chain blocks, no single connected flow.
What is called an operational structure is in fact a set of disparate functions
Low forecast coverage, since the purchasing department works on the basis of incorrect data
There are no long-term sales plans and it is not clear who should build and control them
Let me remind you that for a trading business, getting less than >80% of the purchase forecast leads to a critical situation.
If you think that this mistake is typical for small companies just starting their life cycle, then you`re seriously mistaken. The cross-section of companies that I looked at fluctuates in turnover from 11 million - 2 billion USD per year.
Seemingly Simple Questions
What should the Procurement Department Reference Structure look like?
Where is the category manager in the structure?
What is his/her function?
Who does he/she report to?
And if there is none, then who, and how, builds the assortment matrix?
Who builds, checks, approves long/short-term Assortment Sales Plan?
but the larger the structure and the number of SKU, the more difficult it is to answer them.
I know that many of you have long been looking for the Reference structure of the supply chain and its individual blocks (purchase, delivery, warehouse, distribution, finance, marketing, etc.). But "HOW?" to build a standard, if all businesses are different, and their differences can be counted endlessly? Even companies operating in the same market, in the same location, with the same type of product will have a different business structure
The answer is that the Reference Structure does not exist.
More precisely, it does exist, but not from the linear perspective you are accustomed to.
The basis for building the most effective business structure is the Value Stream
The construction of the entire supply chain structure, and individual purchasing, delivery, warehouse, and distribution departments lies in the Value Delivery Stream (Value Stream).
Thinking from the point of view of department structure:
What should departments look like?
How many employees do I need?
Who is responsible for what? (This is a fundamental logical error leading to extensive structural errors)
This is thinking from the particular to the general, and such an approach is doomed to mistakes.
Building a structure must be top-down, as in strategizing – so the starting point for any structural thinking is the Value Delivery Stream.
Methodology for Creating a Reference SCM Structure
Stage 01
Describe the value delivery flow
Example of Flow
Idea - Definition of Product and Unique Selling Proposition
Definition of goods (purchased or produced under own brand)
Selection of suppliers
Research and development (R&D)
Determination of Procurement volumes - Forecasting
Purchase
Delivery to warehouse - External logistics
Storage
Inventory management
Delivery - Internal logistics
Sales organization - Consumer
After-sales service and warranty service
Stage 2
Now in each block of the Value Stream, using Verbs, we describe the “Tasks, Actions, Processes” that occur in this block, and so on throughout the entire chain of delivery of this value.
Example of Processes
Target audience research
Searching for suppliers, checking new offers
Testing of product samples
Building a Procurement Forecast
Determination of delivery routes and options
Organization of storage
Stage 3
Defining the Business Function of each written process.
Example
Function | Tasks, Actions, Processes |
Product development | Target audience research |
Calculation of commercial terms | Searching for suppliers, checking new offers |
Production | Testing of product samples |
Procurement forecasting | Building a Procurement Forecast |
Delivery to warehouse | Determination of delivery routes and options |
Storage | Organization of storage |
Stage 4
Distribution of designated functions between departments.
Opposite each function we indicate who should be responsible for it. Department
Example
Function | Tasks, Actions, Processes | Department |
Product development | Target audience research | Marketing |
Calculation of commercial terms | Searching for suppliers, checking new offers | Procurement |
Production | Testing of product samples | Procurement |
Procurement forecasting | Building a Procurement Forecast | Procurement |
Delivery to warehouse | Determination of delivery routes and options | Transport logistics |
Storage | Organization of storage | Warehouse |
Stage 5
Sort the received data by departments and build a structure based on it.
We assign responsible stuff or introduce new staff units for missing functions.
As a result
You get the most antifragile transparent structure, which considers all the features of your business, financial capabilities in terms of the number of employees, and it is clear who is responsible for what.
That is, the basis is Value Delivery Stream (Value Stream).
If we initially perceive the entire basic structure as a flow of creation and delivery of value, then the question of areas of responsibility of employees and the structure of departments disappears. Even if a company, for example, does not have a budget for a category manager, which is typical for small and medium-sized companies, then his functions are painlessly distributed among other employees (most often, the head of the procurement department)
In fact, I`ve just described to you how you can quickly and super effectively set up the ENTIRE operational structure of any business. This approach is effective for a trading business of any size, in any industry, in any location on the planet. Also, this methodology is suitable for auditing any size business.
Presented By
Anna Trapeznikova
Supply Chain Business Leader
Member, Education and Research Practitioner Board (ERPB)
Building Resilience in a Volatile World
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