Goldratt’s novel Necessary but not sufficient

The protagonist of this book is Scott Duncan, CEO of the ERP supplier BGSoft. Every quarter, his listed company has to give forecasts of percentile growth in the double digits. In November 1998, Scott notices that one of their competitors is hit by negative financial growth and is forced to fire six hundred people. Is the entire ERP industry grinding to a commercial halt? The way out for BGSoft is selling value: BGSoft customers are not required to pay until the pre-calculated savings targets are met.

Two years ago the Dutch film ‘De Uitverkorene’ (the chosen one) came out, a fiction film that was clearly inspired on the lives of the brothers Jan and Paul Baan. This powerful film shows how all kinds of conflicts of interest can suddenly arise when people’s work, faith and private lives become too closely intertwined. The company in the film will surely go down, just as Baan Company did in 1998. Dutch actor Pierre Bokma won an International Emmy Award for his performance as one of the two brothers.

Although we can also ask ourselves whether the supply chain has become more important at the corporate level. How many companies actually have an excelling supply chain as a core strategy? Which companies have a supply chain position in the board room? And have we not been going over the same thing for the past twenty years? Are we really still discussing the matter of logistics versus supply chain?

Supply chain, in its current form, is nearing the end of its life cycle of integration and optimisation. Even supported by the latest IT technology, the intended total network integration and optimisation is grinding to a halt. We are getting snarled up in woolly terms like expectation management, incentives, people management, engagement, organisational behaviour and influencing. It is high time that we acknowledge that we are all but done integrating and optimising, that we are starting to repeat ourselves, that we have to think of something new. Not more IT, not more transactions at even lower levels to generate even more data that creates the illusion of control, the right behaviour and the right decisions.

Operations research has yielded many algorithms that supply chain professionals and IT developers have eagerly used to solve problems regarding forecasting, inventory management, allocation, networks, production optimisation and so on. There is, within operations research, such a thing as the hardest category of problems: the NP-complete problems, or in other words, problems that cannot be optimally solved within a linear time algorithm. Unfortunately, the human behaviour that creates and has to solve many problems in the supply chain is much more complex.

Behaviour and decisions, especially under pressure of time and politics, are often not rational. Perception of quality, prices and performance differ from person to person within a company, and even more so between the company and its suppliers and customers in different countries with different cultures, values and motivations. To get more out of the supply chain, we will have to radically change things. An understanding of organisational and cultural behaviour, the so-called ‘behavioural supply chain’, will be of vital importance in taking the next step in our global and multi-cultural supply chain world.

Yarra River in Melbourne Autralia

Last week here in Melbourne, Rob Murray, CEO of Lion Nathan (producer of beer and wine products) dared to relate the ten-year success of his company, in terms of increased sales and shareholder value, directly to the ten-year cultural growth of his company. The previously dominant culture of aggressive-assertive and passive-defensive behaviour has been changed to positive collaborative behaviour thanks to a cultural awareness programme. The employees are now better at sharing information and collaborating, and are much more enthusiastic about the company and its brands. Perhaps even more importantly, this makes the customer more enthusiastic as well and more inclined to spend more on a supplier that truly believes in its company and brands. Changes like these take vision, courage and leadership at the highest level.

We know by now, in theory, what the supply chain is supposed to look like. Yet we are progressing with difficulty, and get stuck on the human factor. Once upon a time, as a graduated operations researcher, I set out into the world with a single objective: to optimise! I still want to do that, but I have since learned: ‘There are no problems, only people.’

Niels van Hove,  S&OP Manager Cheese, National Foods