In most companies, supply chain is, by definition a shared service. Shared service organizations are set up to support the company’s core business functions. However, where supply chain can put itself at risk is by mistaking what role it plays in the overall strategic direction of the company.
The organizations that make up the company’s core competencies will define the company’s strategic goals. Supply chain leadership should offer expertise on how they can support the core business in achieving these goals as effectively as possible. The nuance is subtle but critical to successfully partnering with the core business functions. There will always be the need to set strategic goals and a vision within any shared service organization. However, the focus with the core business functions should always be on support.
What IT can teach us
The classic example of a shared service is IT. In almost all cases, IT is positioned to make other organizations more effective at achieving the company’s strategic goals. IT does not set the company’s strategic goals. Over the years, some IT organizations began to lose sight of this distinction. It is easy to understand why. As more affordable and powerful technology solutions became available, the role that IT played became more critical. In some companies, the criticality of IT caused IT leadership to challenge their role in the company. Rather than operating as a shared service, IT organizations tried to insert themselves in the core business strategic planning process. IT’s desire to redefine itself in this way demonstrated to the rest of the company that IT had lost sight of its mission. No one questioned that the value of IT had increased. However, the core capabilities of the company continued to see IT as a critical support capability to the business.
The purpose of the IT backdrop is to serve as a cautionary tale to supply chain. Shared service organizations are at a greater risk of being outsourced when they lose sight of their supporting role and begin dictating to the core business functions. Supply chain processes, behavior and attitude should align to operate effectively in a supporting capacity. In some cases, IT organizations were outsourced when they tried to reposition themselves as a core capability. This is not meant to suggest that outsourcing decisions are made solely on a shared service organization’s relationship with the core functions of the business. The point is that it is one of many factors that can contribute to outsourcing. More importantly, it is a risk that supply chain can mitigate.
Define core and support capabilities
As you begin to assess the mission of supply chain in your company, it’s helpful to define your company’s core capabilities and support capabilities. The core capabilities set the strategic goals for the company and have a direct impact on the company’s gross revenue. All other organizations make up the company’s supporting capabilities. Their mission is to support the core capabilities so that the company as a whole can achieve its goals.
The diagram (see graphic) shows a typical example of the relationship between the core capabilities and supply chain in the oil and gas industry. Both sides are critical to the company’s success. However, the way in which executives view these two categories is very different. It is not uncommon to hear an executive say that the core capabilities are ‘what we do well.’ However, it isn’t to say that the opposite has to be true of the company’s supporting capabilities. This is a critical point to understand when a company is considering whether or not its supporting capabilities should be managed through an outsourcing relationship.
How to operate successfully as a shared service