Sure, manufacturers have to innovate — if they don't they won't stay competitive. But it's equally important that their supply chain remains consistent, reliable and compliant. You couldn't find a better example of where mode 1's resilient continuity has to blend with mode 2's rapid-fire flexibility.
The trick is finding the right balance between the two.
Supply chain innovation
Enterprises are increasingly grappling with this conundrum because of the rising opportunities for supply chain innovation using connected digital technologies. The need to innovate isn't something new in itself. But what is new, says Michael Dominy, Gartner VP and chief of research for supply chain, "is the rate change at which you do it."
Speaking at the analyst firm's Supply Chain Executive conference in London this week, Dominy said it's a matter of blending continuous improvement, which goes on all the time, with transformative step changes that are typically a response to some external trigger. The latter have to be developed quickly using the more exploratory mode 2 approach, but then adapted to operate reliably at scale as they're introduced into mode 1 operations:
What's really critical here is the ability to manage within and between modes. The ability to take what is the right solution and then [add] governance and industrialize it.
Striking a balance
Dominy was introducing a case study presentation by Karthik Rajara of Schneider Electric's global supply chain transformation team. The energy management company used to manage innovation at a regional level, but as part of an initiative to globalize its supply chain, it created a central transformation unit to lead innovation, while the six regional operations look after continuous improvement.
This bimodal structure strikes the right balance between having the supply chain operations remaining responsive to customer needs in their local geography, while leveraging global scale in the transformation team. The scale is massive — over half Schneider Electric's 170,000 employees work in the supply chain operation, which includes more than 230 factories and handles 130,000 orders daily.
I found five takeaways from Rajara's presentation.
1. Shared goals
All activities are grounded in the company's overall goals, which are set at two levels. There's a three-year strategic program that sets the overall tone, and then annual improvement plans within that. The annual plans are defined in terms of a global supply chain 'hoshin', which ensures that the overall goals are made explicit as specific balanced scorecard parameters within each aspect of operations.
2. Steering committee
Operational teams have quarterly business reviews to monitor performance against objectives and assess areas for improvement. The faster cadence of the transformation team requires a monthly executive steering committee to examine progress in driving change and innovation. This brings together key project owners from the regional operations teams as well as the transformation leaders and Schneider's Chief Supply Officer, as Rajara explains:
The CSO participates every month for this particular reason — to strategize what is important. Where do we need to invest money, is it going right, and what needs to go into Mode 1 in terms of deployment, or do we need to cancel?
This is really the key area where the innovations are tested with the regions and the communication happens. This is an important step, because every month we have this regular follow-up.
3. Talent management
An essential ingredient when rolling out transformation programs is to ensure that the right functional skills are in place. This must bring together people from both the operational and transformation teams to get the mix right, says Rajara.
We have a talent management committee whose primary goal is to look at all the programs we have [on the roadmap] ... Do we have the competency, do we have the right people, to take it to the next step? It's a big question to ask, because when we do not have the right people, the transformation takes longer.
4. Measurement and feedback
The impact of transformation projects is closely monitored using the same balanced scorecard methodology that tracks continuous performance improvement, Rajara explains.
This is kind of a KPI with the ability to bring the mode 1 and the mode 2 together and the people can really understand where these projects are contributing. It's very powerful because it's exactly synchronized with [the hoisin].
5. Return on investment
Transformation projects have to demonstrate a return on investment, because the budget for new projects comes out of those productivity gains. Schneider reinvests about 10% of its productivity gains back into transformation, says Rajara.
We've previously written about how the R&D team at Schneider Electric is working with connected digital innovation in product development. Now Rajara's account provides a very operations-centric viewpoint that is all about connected digital innovation in business processes. Two very different applications of technology that are each having transformational impact on a very forward-looking business.