“If you are going to do TPS you must do it all the way. You also need to change the way you think. You need to change how you look at things.”
Taiichi Ohno, father of the Toyota Production System
Transformation is the common denominator across all organizations today be it how they are managing their human capital or their supply chain or customer experience and digital is at the core of it.
While Digital transformation is a huge subject there is enough said and written about it. Hence, I wanted to focus on a related but slightly different topic. As organizations embark on these transformation journey how important is it to have a robust Enterprise Architecture in place to govern and execute these transformations.
So, what is Enterprise Architecture. While there are many definitions to it, I like this particular one from Gartner which says “Enterprise architecture (EA) is a discipline for proactively and holistically leading enterprise responses to disruptive forces by identifying and analysing the execution of change toward desired business vision and outcomes. EA delivers value by presenting business and IT leaders with signature-ready recommendations for adjusting policies and projects to achieve targeted business outcomes that capitalize on relevant business disruptions.”
In the subsequent parts of this work I have tried to put down my thoughts on how transformations have multi-dimensional impact and why organizations need to define a strong Enterprise architecture before they embark on this journey
Let us start with a couple of examples.
As the first example, let us look at how the organization / enterprise structures are evolving. Organizations today are needing to build more and more complex legal and supply chain structures to leverage subsidies, tap global markets, benefit from special economic zones or Free trade zones etc and with this there is a need to ensure that the remaining elements are aligned with this. This would need the supply chain networks to be redefined. Identify new vendors, logistics providers or revise contracts with existing ones, define transfer pricing policies, setup systems to enable these and revisit the governance around these.
Another example could be of setting up a connected factory or automating a warehouse. This would mean redesigning production lines, educating vendors for revised specs or building more controls or processes. For example, if you are setting up an automated storage and recovery systems then there is a change needed to align vendors to provide the pallets with the right dimensions or work with logistics partners to ensure they adhere to the prescribed packing dimensions. This also adds to how the vendor performance or the factory or warehouse performance is measured to govern these changes.
An Enterprise architecture is a discipline that enables organizations to drive these changes in a structured and cohesive manner. This would broadly cover Structure, People, Process, Systems & Information. Let us look at each of these in a little bit more detail
Enterprise Structure
Before going any further let us try to define an Enterprise. An Enterprise is an organisation or a group of organisations coming together towards a common vision or purpose. The organisation here could be a company, department within a company, group of departments or even group of companies. Every enterprise can have different points of view based on their final objective or goal. For example, there could be a definition of an enterprise which defines its legal standing. This could comprise of a holding company, child companies having their own legal identity and shareholding patterns etc. This is driven by how the enterprise represents itself to the Government and statutory bodies and to what purpose. Similarly, an enterprise could have a very different point of view based on how it wants to analyse its financial health, profitability, cash flow etc. This could be based on strategic business units, geography, product lines etc. Another perspective of the same enterprise could be its supply chain network which represents how the demand and supply flow or how the material moves. Here the definition of the enterprise would not just be the organization, but it would also cover customers, suppliers, contractors and anyone and everyone in the value chain. The enterprise structure is designed / defined keeping the strategy in mind and these different points of view reflect the strategy of the overall enterprise in their respective dimensions. As the enterprise adopts new strategies, it is important to be able to identify the enterprise structure from these different points of view and continuously assess as to how the change impacts the various structures.
People
The strength of an enterprise is its people. Over the years various surveys of CEO have revealed that people or talent has been one of the primary things on a CEO’s mind. For example this HBR article from 2015 as well this Gartner report from 2018 both highlight people or talent as one of the top issues for a CEO. With transformation one of the key areas to be assessed is talent management. It is important to understand the change and its impact. One examples of impact would be ensuring people are equipped with the right skill. This would need training, reskilling. For example, if an organization automates their payables processes then they wouldn’t need their payables clerks to punch invoices. Instead they would need to be trained to be more strategic. Explore options for cost savings, proactively asses and mitigate deviations, improve cash flow etc. This would need them to understand the bigger picture to appreciate this change, their KPI’s would need to change to reflect the change in their role and they would need to be trained to ensure they are capable of handling this. Similarly, it is important to identify the right people to drive the strategy and maximise the output. For example, if an organization is starting an e-commerce channel or setting up a connected fleet then it is important to identify the right stakeholders. Someone who understands the brick and mortar and can appeal to the ethos, pathos and the logos of the other stakeholders to be able to drive this shift. Similarly, it is important to define IT as a key stakeholder in the exercise as IT systems become a critical element in the setup as much as customer experience or supply chain and operations. Once these stakeholders are identified they need to be enabled and empowered to drive this change without which the exercise is at a risk of failing. Some of these changes could also bring in new roles in the organization. For example, if the e-commerce platform offers an option to click and collect, then there is a need to have pickers who will pick the items from the shelf and pack it and keep it ready for the customer to pick up
Process
As the roles change, performances measures change there is also a need for change in processes, governance and controls. Going back to the same example of e-commerce, the shift to e-commerce would bring a huge change to how customer complaints are addressed or how store footfalls are measured. Going back to the example of the click and collect, now there is a need for processes to be defined around how the orders or items are picked, when should they be picked (for e.g. if the customer has a pick up slot at 5 pm and the order includes perishables you wouldn’t want to pick it right at the start of the day). There are also other governance or checks needed to ensure the picking is completed on time or processes around what needs to be done if the customer does not show up or if the item is not available at the time of picking. This will also go back to our strategy on how we handle customer expectations. In this case maybe allow only a small-time window of couple of hours to book the slot or provide for a staging area to pick and reserve these items till customers pick up. Similarly, think about a scenario where an organization is moving from decentralized to centralized procurement to leverage economies of scale. Suddenly there is a huge shift in processes from how the items were requested to the role local buyers would pay versus the central purchasing team. The processes also impact how the supplier negotiations happen
Information
If the people and process are the two wheels of a cart, then information is the axle that holds them together and maximises their output. Information is what drives us all. This is well understood. But what is crucial is that during a transformation to understand how this information will change or must change. Let us take the same example of the e-commerce. In the traditional brick and mortar model the stores were replenished based on the inventory available, safety stock and the demand seen at the store. The information was readily there. We knew the daily sales for the items in the store and we could arrive at a demand plan. We could then consolidate these at the regional and / or central warehouses and arrive at a replenishment plan. Now with e-commerce this will change. Its not just a simple maths to consolidate the demand at store followed by the regional distribution centres followed by the central distribution centre. Channel is an additional dimension to be analysed. For e.g. how much of the sales from the e-commerce is fulfilled from the regional or central warehouse and how much by stores and how much of the store sales is attributed to e-comm and brick and mortar. Similarly, in the case of a central procurement it is not just enough to look at the local purchases to decide the terms for a contract renegotiation. It is also needed to see what the distribution across different BU or locations would be. Would this call for more logistics spend or more handling charges or duties. Should these items be centrally procured and distributed or centrally procured but delivered directly or locally purchased. Information is vital to make these decisions and negotiate options with the vendor appropriately.
Systems & Infrastructure
Finally, systems and infrastructure are that last piece of puzzle that brings all others together. Systems, naturally, are directly driven by the others and it is relatively easier to understand this impact. With every change in process, and the change in information or data needed to enable these processes and people, there is a need to revamp the systems. But by system it doesn’t just mean having automation or software. Of course, that is a given. For example, with e-commerce system it is vital to have an omni-channel order management which can take the orders coming from multiple sources, identify the right fulfilment network and fulfil the order. Similarly, to enable payables automation there is a need for a system to be able to take in supplier invoices from different channels (e-mails, EDI, paper) and change it to meaningful data and post it to the system. However sometimes the changes can be larger. For example, in case of an e-commerce enablement a crucial infrastructure that would need to be established is a multi-channel customer helpline. This would need larger investments like setting up a contact centre along with the needed infrastructure, training educating, and communicating this to all stakeholders internal and external. Similarly, if there is a need to setup staging areas or reserve inventory in the stores then there is a need to make the relevant infrastructure changes to enable these processes
Summary
While the above are key areas that are impacted during a transformation, today there is perhaps very little available as methodologies or tools to ensure that an organization is covering these aspects through the planning, inception, build, construct, deploy and transition stages of the project.
Enterprise architecture needs to play a vital role in ensuring that these five elements are always aligned with each other and with the overall strategy through the journey and is given the due importance needed
This is a humble attempt at articulating my understanding of transformation and it may not be the most accurate perspective on the same. Hence look forward to hearing from more people. Please feel free to provide your feedback
Transforming Supply Chains 