00:00:08 Discussing bureaucracy in supply chain management and its implications.
00:01:00 Defining supply chain and its differentiation from logistics and operations.
00:03:53 The emergence of supply chain specialists and bureaucratic structures in larger organizations.
00:06:40 Benefits and downsides of bureaucratic structures in supply chain management.
00:07:02 Parkinson’s Law and the inherent issues within bureaucratic organizations.
00:08:01 Bureaucratic organization growth and challenges.
00:09:24 Opacity and specialization in bureaucratic tasks.
00:12:00 The impact of bureaucratic inefficiencies on supply chain.
00:13:00 Identifying and mitigating bureaucratic patterns.
00:15:32 Exposing bureaucracy to consequences to improve efficiency.
00:16:00 Feedback loop: direct contact between supply chain scientists and warehouse floor workers.
00:16:56 The dangers of disconnected and unproductive teams with smart people.
00:18:12 Bureaucracy as a necessity in specialized intellectual tasks.
00:20:36 Parkinson’s law: bureaus growing continuously without a clear limit.
00:23:01 Finding the balance: embracing bureaucracy while maintaining a collective awareness.
00:24:01 Parkinson’s Laws and identifying bad ideas.
00:24:27 Assessing bureaucratic positions in companies.
00:25:00 The prevalence of “useless” jobs and their impact.
00:25:38 Reallocation and retraining of employees in unproductive roles.
00:26:18 Cultivating awareness and taking action to improve organizational efficiency.
Summary
In this interview, Kieran Chandler speaks with Joannes Vermorel, founder of Lokad, about supply chain management and the challenges of bureaucracy. Vermorel emphasizes the need for specialized knowledge in supply chain decisions but warns against unchecked bureaucratic growth. He suggests embracing the bureaucratic core while cultivating a culture of awareness to combat inefficiencies. Vermorel recommends reading Parkinson’s Law to identify detrimental ideas and advises companies to assess the percentage of employees doing meaningless work, reallocating or retraining them as needed. By balancing the benefits of specialization with the potential pitfalls of bureaucracy, organizations can improve their overall performance.
Extended Summary
In this interview, Kieran Chandler speaks with Joannes Vermorel, the founder of Lokad, a software company that specializes in supply chain optimization. They discuss the bureaucracy involved in managing supply chains and how it can both be a problem and a solution for organizations.
Vermorel defines supply chain as the “mastery of optionality in presence of variability,” focusing on abstract decisions rather than logistics and operations. He explains that supply chain decisions involve purchasing, transporting, producing, and selling goods, as well as allocating assets. These decisions are essential for organizations, as they can have significant financial implications.
Supply chain decisions often result in bureaucratic processes, with paperwork being the primary output. Vermorel argues that this bureaucracy is not only a problem but also a part of the solution. It has value in guiding organizations on when and how to make important decisions.
Organizations of all sizes can be affected by supply chain bureaucracy, but it primarily impacts those that have reached a scale where the notion of supply chain becomes meaningful. Vermorel suggests that companies with over $100 million in annual turnover typically require a team of specialists dedicated to managing supply and demand decisions. These specialists may have various job titles, such as category manager, inventory manager, demand planner, or forecaster.
Modern organizations often strive for lean operations but can still fall into the trap of bureaucracy. Vermorel notes that having specialized individuals managing supply chain decisions is not necessarily a bad thing. It can be rational and efficient to have a team of specialists handling these decisions, allowing for the separation of responsibilities between those managing the supply chain and those overseeing operations on the ground.
The bureaucracy involved in supply chain management can both help and hinder organizations. While it can lead to a complex network of systems and processes, it is also essential for making informed decisions about purchasing, producing, and selling goods. By employing specialized individuals to handle these decisions, organizations can optimize their supply chains and achieve better overall efficiency.
Vermorel explains that bureaucratic organizations, such as compliance, legal, and marketing departments, can provide higher productivity and performance due to their specialized knowledge in obscure tasks. However, the downside is the inherent bureaucratic nature that encourages the growth of these departments, sometimes faster than the rest of the organization.
The interview delves into Parkinson’s Law, which posits that bureaucratic organizations will grow regardless of the actual need for additional workforce. Vermorel emphasizes that it is difficult to assess the real need for extra workforce in bureaucratic tasks, as they often involve obscure and technical knowledge. For example, legal departments may be opaque not because they want to protect themselves but because legislation itself is often complex and hard to understand.
In the context of supply chain optimization, Vermorel points out that assessing niche tasks, such as evaluating vehicle routing algorithms for a fleet of trucks, requires specialized knowledge that most people do not possess. This specialization makes the work opaque to those not involved, leading to the question of how much time and resources should be allocated to such tasks. The challenge lies in determining the optimal balance between time spent on these tasks and the potential benefits.
To address the inefficiencies in supply chains and bureaucratic organizations, Vermorel suggests that there is no clear answer as the optimal balance varies for each company. It is important to be aware of the potential for bureaucratic growth and inefficiencies while recognizing the value of specialized knowledge in certain areas. Ultimately, companies must continuously evaluate and mitigate the bureaucratic aspects of their organization to ensure the most efficient use of resources and time.
He references Parkinson’s laws, which identify negative bureaucratic patterns that can hinder a company’s growth. Vermorel argues that while some level of bureaucracy is necessary for specialized intellectual tasks, it can become detrimental when it turns inward and focuses on self-serving projects.
He cites the example of an SNLP (Sales and Operations Planning) team that starts to add layers to their own bureaucracy, leading to a decrease in efficiency and effectiveness. The situation can worsen as more people are added to an already bloated process, with consultants and facilitators further complicating matters.
Vermorel suggests that one way to counteract the negative aspects of bureaucracy is to expose those involved in the bureaucratic process to the consequences of their actions, both positive and negative. He advocates for direct contact between supply chain specialists and warehouse staff, for example, to establish feedback loops and promote more effective communication.
However, Vermorel also warns against the creation of specialized teams that may become disconnected from the company’s core objectives. He emphasizes the need to balance specialization with the risk of highly intelligent individuals getting lost in complex problems that don’t provide tangible benefits to the company. These individuals can end up focused on intellectual challenges without actually delivering solutions, which can be counterproductive.
Vermorel points out that bureaucracy is an inevitable result of specialized intellectual tasks, but companies need to be cautious about allowing bureaucratic structures to grow unchecked. He asserts that the alternative to bureaucracy – having smart, willing, but ultimately incompetent individuals – is not ideal either. It is important for companies to find a balance between the benefits of specialization and the potential pitfalls of an overly bureaucratic organization. Vermorel highlights the difference between physical labor and intellectual labor, emphasizing that the latter often makes it difficult to identify when a job is done, leading to potential inefficiencies. He suggests that organizations should embrace and understand the bureaucratic core of supply chain management and create a culture where employees are aware of the patterns of bureaucracy so they can fight against it collectively.
Vermorel recommends reading Parkinson’s Law, a short book, to help identify ideas that might sound good but are actually detrimental to the organization. He advises companies to assess the percentage of employees doing meaningless work and consider reallocating or retraining them to more productive roles. By cultivating awareness and taking an external perspective on their organization, companies can identify areas of inefficiency and work to improve their overall performance.
Full Transcript
Kieran Chandler: Hey, with 95% of the world’s supply chains existing in companies of over a thousand employees, organizations must use a complex network of systems and processes. As such, today we’re going to discuss just how bureaucratic these organizations are and what we can do to make practitioners more efficient. So, Joannes, as a proud Frenchman, you must have an understanding of the world of bureaucracy. Why is it such a problem for our supply chains?
Joannes Vermorel: Well, it’s not just a problem; it’s also part of the solution. It’s just that the type of solution you get comes with problems of its own. The way I see it is that, first, if I define supply chain as I do in my lectures - as the mastery of optionality in presence of uncertainty when considering the flow of physical goods - it sets it apart from logistics and operations. Supply chain is very much about the abstract decisions, not about how you can actually run the warehouse or your fleet of trucks. It’s about the strategic decisions that the company is making, which, by the way, if you don’t have people on the ground to implement and execute, then you can’t do anything. However, supply chain is very much geared towards this high-level decision-making process, which essentially governs what you’re going to purchase, transport, produce, and when.
And thus, because of the focus on those abstract elements and decisions, what you invariably get from one form or another is a bureau that produces paperwork. Obviously, nowadays, it’s digitalized, but the old metaphor of the bureau producing papers still kind of applies. That is what the supply chain is actually doing, and it has real value. If you don’t know when you should buy, when you should produce, at what price you should be selling, or where you want to allocate all your assets, then a lot of money and opportunities are lost for the company. So, this has a lot of value, but nevertheless, you have a bureau that is fundamentally producing paperwork all day long.
Kieran Chandler: Okay, so what kind of organizations does this really affect? Is it mainly the very large organizations that have these issues?
Joannes Vermorel: I believe it first impacts all the organizations that reach a scale at which the very notion of supply chain is meaningful. If you’re a one-store, independent store, you don’t really have a supply chain per se; you have a store. And the person who happens to be the primary inventory manager, accountant, and business owner is going to be pretty much the same person.
Kieran Chandler: So, Joannes, if I understand correctly, having a supply chain involves making a lot of complex decisions every day about what to produce, what to buy, and how to allocate inventory. And once a company reaches a certain size, they need to have a team of specialists dedicated to making these decisions, right?
Joannes Vermorel: Yes, that’s right. All companies that exceed a turnover of around $100 million per year will eventually need a team of specialists to manage their supply chain. These specialists have different job titles, such as category manager, inventory manager, demand planner, forecaster, and demand and supply planner. But they all have the same goal of optimizing the flow of goods from suppliers to customers.
Kieran Chandler: I see. And even though companies try to be lean, they still end up with a bureaucracy of specialists managing the supply chain. What are the outcomes of having so many people involved in these decisions?
Joannes Vermorel: Well, having a specialized team is actually a good thing because they can handle the bureaucratic work that’s required to make these decisions. But the downside is that with a bureaucracy comes all sorts of bureaucratic elements of life in the company. And with the emergence of a bureaucratic power in the company, there can be downsides.
Kieran Chandler: Can you give me some examples of the downsides of having a bureaucracy managing the supply chain?
Joannes Vermorel: One problem is that there can be a lot of bureaucratic red tape that slows down decision-making. Also, the specialists in the bureaucracy may become more concerned with their own interests and power than with the overall success of the company. And finally, there can be a lot of inefficiencies in the bureaucracy that lead to increased costs and decreased productivity.
Kieran Chandler: I see. So, even though having a specialized team dedicated to managing the supply chain is necessary, it’s important to be aware of the downsides and work to mitigate them.
Joannes Vermorel: Yes, that’s exactly right. A company needs to strike a balance between having a specialized team that can handle the complexity of the supply chain and avoiding the downsides of bureaucracy.
Kieran Chandler: In the book called “The Laws of Parkinson,” published, I believe, in the early 60s, the idea is that every bureaucratic organization, and when I say bureaucratic, I don’t mean that as a pejorative term, I just mean something that has the organization of a bureau in one form or another. It can be very useful, but it’s a bureaucratic organization because, in a sense, people are not doing anything but taking the decision that will be implemented by other people.
Joannes Vermorel: That makes sense to organize it that way, but the downside, as documented, is that a bureaucratic organization always wants to grow, ideally faster than the rest of the organization. The reasons are simple: a manager in a bureaucratic organization wants to multiply the people that he or she manages. Due to the bureaucratic nature of the work, there’s very little way to assess whether the need for extra workforce is real or not. This has been true in all bureaucratic organizations, pretty much forever. It was already something that was plaguing the Society of Nations a century ago, and there’s even a famous French novel called “Belgium” that relates to this sort of thing where bureaucracies end up doing things that are pretty much irrelevant.
This is a side effect that you get with any bureaucracy. The initial step is just to realize that those things cannot be eliminated, they can only be mitigated. We have essentially a set of people who are specialized in a fairly obscure task. That’s what a bureau is doing. They are doing obscure things, and the key reason why they are so productive versus having everybody in the company doing the job is that those people have mastered one way or another some kind of obscure techniques that give them an edge against the rest of the company. This is true for compliance, legal, marketing, and so on. When you have this sort of bureaucratic power, it’s precisely because they have mastered some kind of obscure knowledge or practice that is fairly opaque for the rest of the company.
The opacity is not a desire to protect themselves from the rest of the world; sometimes, it’s just very technical. For example, in legal matters, it turns out that it’s fairly opaque, but it’s not that the legal department is doing things that are opaque; it’s that legislations are fairly opaque in the first place.
Kieran Chandler: Is that why the reason it kind of affects supply chain as an area because some of those tasks are very niche and obscure?
Kieran Chandler: Fairly complex topics are involved in supply chain optimization. For example, assessing various vehicle routing algorithms to determine which one is more suitable for a specific fleet of trucks is a niche skill. Most people have zero clue about that. How can supply chain teams make an assessment and benchmark the various algorithms found in literature to pick the one that is most suitable for the company?
Joannes Vermorel: It turns out that this work is going to be completely opaque for pretty much everybody who is not a specialist. Yet, if you don’t pick an algorithm, your delivery routes are going to be dramatically inefficient. So you want to pick one, but you have to be aware of the amount of time that is reasonable to spend on this question. Should the team spend one hour surveying Wikipedia, 10 hours, 100 hours, a thousand hours, or even spend a whole decade engineering something better? There is no clear answer to that. All those options are possible. Obviously, spending a whole decade is the sort of thing that would only make sense for a fairly large, multi-billion-dollar company. But you see, if it’s really something that gives you an edge, a company can decide to spend literally years on the case, and it might be something very reasonable. However, it might also be something that is completely bureaucratic in the worst sense of the term, which is people just wasting time and doing nothing.
Kieran Chandler: So, what can be done then? It sounds like certain supply chains are maybe quite inefficient, and there might be a few “free riders” in the organizations that aren’t doing much work during their working week. What can be done to weed out these people and make these organizations more efficient in the time they’re spending?
Joannes Vermorel: First, it’s essential to assess whether you have those bureaucratic structures and identify such patterns. For example, Parkinson’s Law identifies emergent bureaucratic patterns in a negative sense. When you have an element that is already a bureaucracy, like an S&OP team, and those people start looking inward and want to add layers to their own bureaucracy, that’s very typical of bureaucracies expanding their own intricate complications. As a rule of thumb, it’s very rare in my experience that there is any positive outcome for the companies at large when they are undertaking tasks this way. The danger is when a bureaucracy starts turning inward and begins projects that only make sense from their own perspective. Here lies the danger because you can end up with things that are purely bureaucratic in the worst kind of bureaucratic meaning, where people are creating essentially fake work.
Kieran Chandler: Work and, uh, that happens all the time, especially, I’m quoting SNOP because I believe that it’s very typical where you want to have everybody on board and so you will have tons of meetings.
Joannes Vermorel: Due to the fact that you have tons of meetings, you need to have meeting facilitators and then you need to bring in consultants to streamline things. So you add even more people to a process that already has too many people. Then you have some people that are going to complain about the process, and the solution will be to add those people to the process that was already suffering from an excess of people taking part in the process, etc. So you see, that’s a sort of flow where, when you see these sorts of things happening, just cut it.
I think one of the best ways to fight against the bad side of bureaucratic organizations or bureaucratic divisions, and again, my take is that supply chain has a bureaucratic core – it’s both a curse and a blessing that the two are entangled – is to make sure that you maximally expose this bureaucracy to the consequences that it generates, good or bad. You really want to make sure that those specialists are really exposed to the good and bad things that they generate within the company.
For example, if you say, “Well, we are going to make sure that our supply chain scientists discuss with people on the floor in the warehouse once a month,” that’s good direct contact. That’s not bureaucratic; this is literally a feedback loop and making sure that people are much more in contact. If you say, “Well, I believe that within the team of supply chain scientists, we should basically add a separate team that is only dedicated to numerical stability of the numerical recipes,” then you’re creating a team that is most likely going to be very disconnected from the rest of the problems of the company.
It can give you an edge, but the danger is that this team might very well go completely off track on problems that are very interesting intellectually but are completely unproductive for the company. By the way, this is a danger that lies whenever you have a division with very smart people. It is very tempting to have those very smart people tackling very difficult problems for an arbitrarily long amount of time with very little to show for as far as the company is concerned. Those people suddenly become like open researchers, and the very idea of delivering anything becomes kind of irrelevant. They are just there because the problems are so interesting, but solutions don’t even really matter.
Kieran Chandler: You mentioned a bit about SNOP earlier. Would you say that bureaucracy is something that’s changed over time and now companies are trying to use more meta-modern management techniques?
Joannes Vermorel: I believe that bureaucracy is what you need and what you get.
Kieran Chandler: Work and that happens all the time, especially in S&OP because I believe that it’s very typical where you want to have everybody on board, and so you will have tons of meetings.
Joannes Vermorel: Due to the fact that you have tons of meetings, you need to have meeting facilitators, and then you need to bring in consultants to streamline things. So you add even more people to a process that already has too many people. Then you have some people that are going to complain about the process, and the solution will be to add those people to the process that was already suffering from an excess of people taking part in the process, and so on. You see, that’s a sort of situation where, when you see these sorts of things happening, just cut it.
I think one of the best ways to fight against the bad side of bureaucratic organizations or bureaucratic divisions, and again, my take is that supply chain has a bureaucratic core, which is both a curse and a blessing. The two are entangled. It’s essential to make sure that you maximally expose this bureaucracy to the consequences that it generates, good or bad. So you really want to make sure that those specialists are exposed to the good and bad things they generate within the company.
For example, if you say, “We are going to make sure that our
Kieran Chandler: So, Joannes, you mentioned earlier that it can be difficult to streamline a team when you have a bureaucracy in place. Can you tell me more about that?
Joannes Vermorel: Yes, I believe we should just get rid of a person and pay a severance package to streamline the team again. If you have the head of the bureau, the head of supply chain, or the head of the division for mechanical safety, for example, they are never going to go back to upper management saying they believe we should streamline the team and fire a few people. This is just the nature of bureaucracy.
Kieran Chandler: I see. So, it’s different from physical labor versus white-collar jobs?
Joannes Vermorel: Yes, that’s correct. When you have physical labor, it’s more natural to take action when you see that you have half of the workers at home that are in excess. But this is not the case for white-collar jobs.
Kieran Chandler: I understand. So, finding a balance between specialist knowledge and bureaucracy can be a challenge. What advice would you give to find that sweet spot?
Joannes Vermorel: Well, it’s not really a sweet spot. You need to embrace the bureaucratic core of the supply chain and really understand what it means. Create an awareness of the problem and understand the fine print of what it entails. It means you need to have a culture where people are aware of the patterns that happen to the organization over time, the bureaucratic division, and constantly fight it. It needs to be some kind of collective awareness, and I would suggest reading the book Parkinson’s Law to understand it better.
Kieran Chandler: I see. And what other advice would you give?
Joannes Vermorel: Another advice would be to think about companies that have been around for decades and assess how much of your existing staff is actually fully bureaucratic in the worst sense of the term. Try to do an honest assessment of what percentage of people in your organization are doing meaningless jobs that are not really connected to reality, where whether they do it right or wrong, it doesn’t matter, and that are a bit soul-crunching. For example, if you have armies of clerks spending eight hours a day going through Excel spreadsheets, there is a high chance that a high percentage of that is meaningless work.
Kieran Chandler: Is actually qualifying for this job you know, uh, terminology thus makes this assessment and start discussing that again.
Joannes Vermorel: Those people don’t have to be fired, you know. Large companies have plenty of ways to reallocate people, retrain them. It’s not about firing all the people who have those, those, um, those who have, I would say, ill-defined, you know, job position. Usually, it’s not even their fault. They were only, you know, they have been hired and put them in this position. It was not of their own making, you know, landing the job. So this is not only their problem, it’s more generally, uh, the problem. And thus my suggestion is cultivate awareness and try to have like a very honest, you know, external, as external as possible perspective, uh, on your own organization and identify what would, you know, qualify for this sort of job so that you can potentially discussing that in the open, take action to diminish over time, you know, the amount of the portion of the workforce in the bureau that is not, you know, uh, positively contributing to, uh, whatever the company is trying to achieve.
Kieran Chandler: Okay, let’s wrap it up there, but we’ll probably check out a few of those jobs on Reddit now.
Kieran Chandler: Okay, so that’s everything for this week. Thanks very much for tuning in, and we’ll see you again in the next episode. Thanks for watching.