How great supply-chain organizations work – McKinsey & Co.

Written by Knut Alicke, Elena Dumitrescu, Markus Leopoldseder, and Max Schlichter

How do decisions about the design of supply-chain organizations affect the overall performance of a business? We recently analyzed the supply-chain organizations of more than 50 companies in a wide range of industries in Europe, Asia, and the Americas (see sidebar, “Note on methodology”). We asked about strategic priorities, organizational structures, management practices, and work culture in their global supply chains, aiming to understand choices that correlate with companies’ EBITDA performance. What we found may be surprising—and a window into the fabric of successful supply-chain organizations.

Optimal organizational design is a recurrent debate. Supply-chain executives often think about organizational changes in one of three situations: when the structure of the business changes, for example due to mergers or acquisitions; when changes in operations require it, such as the digitization of processes, or the reconfiguration of the supply network; or when leaders notice signs of ineffectiveness, such as new-product launches that take too long to scale, or decisions made in cross-functional forums that fail to be executed effectively on the ground.

Redesigns of supply-chain organizations typically start with a benchmark of peers’ organizational choices, followed by an attempt to replicate what seemed to work well. But design choices don’t work miracles in a vacuum. Our research found no correlation between supply-chain organizational archetypes and companies’ bottom-line performance. Whether organized by region or by business unit, or predominantly centralized; whether integrating processes from planning through sourcing and on to making and delivering—or integrating only portions of these steps—organizational design did not affect the likelihood of a company achieving better EBITDA performance than peers in any sector.

Our research instead found a host of other organizational mechanisms that work alongside structure to determine success. These include the quality of end-to-end coordination, harmonization, and clarity of decision rights; a cross-functional performance system; and employee professional support through social cohesion, mobility, and capability development.

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By Maria Ordonez
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