A well-known U.S. manufacturer was installing new production-scheduling software. Everything seemed to be going according to plan. The system was rolled out to the factory without any glitches. Then, within a week, the company had to shut the whole project down.

What went wrong? Certain individuals had a problem with the system's conclusions. As longtime managers of the production line, their mantra was never to let resources stand idle. Yet the new scheduler was recommending just that, based on signals of actual demand.

Top management had to back up. It gathered with employees at the plant level and explained the theory of constraints, which promotes a supply chain based on demand, not the maximization of production capacity. When the scheduling system was rolled out a second time, it was a success.

The story is told by Dwight Klappich, vice president of Gartner Inc. He's illustrating a maxim of successful change management: don't forget the human element. Education is one way that companies can enact real change within their supply chains, without falling into the traps set by everyday organizational behavior.

No matter how effective the software, or how brilliant the management theory, it can be undermined by a handful of individuals at various levels of a company. "What we've found is that the success or failure of many IT implementations within supply chain programs can be directly related to poor change management," says Klappich. Employees who aren't brought into the process from the very start, or inadequately prepared for change, are time bombs waiting to explode.

Sometimes its simply a matter of demonstrating the benefits of change. Klappich cites another example, of a production scheduler who was convinced that her use of spreadsheets was superior to any newfangled piece of planning software. Working around her to get a small pilot up and running, management was finally able to prove that the new system would actually make her job easier.

Companies need to take the time to explain the assumptions behind a change. "Sometimes people ask, 'Why are we doing it that way?'" says Klappich. "If I don't have a document, I can get defensive."

Other times the opposition can be more insidious. Certain types of human behavior, if not anticipated and dealt with from the start, can quickly sabotage a change effort. Bill Black, chief quality officer with the European Aeronautic Defence and Space Co. (EADS), speaks of the employee attitude typified by the acronym BOHICA-short for Bend Over, Here It Comes Again. Originating in the military, the term has begun to catch on in the business world. But it describes a behavior that is probably as old as human society.

"It's a natural response," says Black. He likens the people within a defined group to a living organism that will defend itself against external forces-in this case, any kind of supply chain change.

The trick is to manage change simultaneously at all levels of the organization. Black describes four distinct tiers, beginning with those who actually carry out the work of the company. They might be engineers, buyers, assembly-line workers, even the first level of management. Above them is the "superstructure," or middle management. Then come senior executives, and finally, top management. A successful program of change will address all of those levels, minimizing the communication gaps that naturally occur among them.

The problem becomes more acute as companies grow in size. EADS, with 2004 revenues of $43.3bn and a majority stake in Airbus, the world's largest commercial aircraft maker, faced a big challenge in breaking down corporate "silos," Black says. The effort had to be equally focused on people, process and tools. Too often, consultants are brought in to address just one of those elements, or only the top level of management. It might take several years for the message to trickle down to the "doing" level, assuming it ever gets there. In such cases, BOHICA becomes an understandable reaction.

Where It Begins
A successful program starts with a clear message from senior executives about what they want to achieve, along with the means to carry it out. But the actual details of execution must come from the bottom up, where employees are closest to the reality of day-to-day operations. Such individuals must be equipped with additional skills, including the fundamentals of Six Sigma, Lean manufacturing, Total Quality Management and business-process reengineering, says Black. At EADS, that translates into a four-week program which "demonstrates to the operational level that we as a company are prepared to trust them to make improvements happen."

Those given the task of enacting change are then put through a multi-step process which ranges from defining the problem to reinforcing the eventual change. Each industry has its own unique challenges, Black says, but in aerospace and defense the watchwords are time, cost and quality. Again, all must be attacked at once in order to ensure real transformation.

	"The success or failure of many IT implementations can be directly related to poor change management." - Dwight Klappich of Gartner Inc.

Dallas-based i2 Technologies has worked closely with EADS to ferret out the causes of sub-standard performance, especially poor supply chain planning. John Cummings, i2's chief marketing officer, says major software acquisitions can be defeated by a lack of detailed road maps for implementation. Success starts with top management making a good business case for the technology, then working closely with individuals all along the supply chain to put it in place. Good organizational design, in which the role and responsibilities of each manager are clearly defined at every stage, is equally important, Cummings says.

Enactors of change tend to promise huge benefits and a smooth path to implementation. They should take a more realistic approach, says Cummings. By properly managing expectations, companies can head off some of the opposition that arises when projects fall short of their goals, or hit bumps in the road. At the start of an engagement, Cummings lays out the entire process, complete with milestones along the way. "There are going to be highs and lows," he tells customers. "Don't overreact to either."

A good plan will allow for the inevitable changes that occur as companies undergo prolonged implementations. Employees must expect shifts in sales channels, customers and supply chain partners over the course of the project, Cummings says. And they must be prepared to react accordingly.

To assess progress and individual performance, companies need to have the right measurements in place. In one i2 engagement, the client wasn't capturing "the essence of cash flow in the right way to measure a business," recalls Cummings. Its behavior was driven by cost per unit, which translated into high production volumes according to a dubious forecast.

"They should have been building to order," Cummings says. "But many companies get into a trap around metrics and they can't get out of it."
"You get what you measure," says Jim Rice, director of the Integrated Supply Chain Management program at the Massachusetts Institute of Technology. "If you want someone to change their behavior, change the measures."

Change Is Inevitable
Individuals within an organization may wish for things to stay the same, but pressure from the outside world makes that impossible. National Starch & Chemical Co. had been experiencing steady growth in its global markets, especially in Europe and Asia. With sales of $3.29bn, the company makes adhesives, polymers and specialty starches for a host of products, including food, computers, paper and vehicles.

Over the last year, National Starch has been working to bring its operations into line with growing customer demand. Supply-chain activities were being managed within the manufacturing sector, the opposite of how many companies are organized today. At the very least, supply chain needed to be a stand-alone business unit, says Jim Mish, senior business director for the personal care division.

Any such shift in reporting structure is bound to ruffle the feathers of middle management. National Starch was determined to head off the inevitable resistance from tradition-bound individuals. It began with an internal analysis which sought input from sales, manufacturing, supply chain and the corporate Business Center, recently formed to oversee those activities. "We weren't out to punish anyone," says Mish. "We just wanted a reality check of our position in the marketplace."

The internal effort served to mitigate the problems that often arise when an outside consultant is brought in at the very start of a project, only to encounter immediate pushback from wary employees. Then, when a consultant was eventually hired, National Starch made sure it was a relatively small firm with only a handful of staff on site. Previous attempts to work with large, bureaucratic consulting groups had yielded few results, other than garnering resentment among the workforce.

By laying the groundwork for outside help, then minimizing its impact on the organization, National Starch allowed employees to draw their own conclusions about what was needed for meaningful change. And it defused the sensitive issue of new management roles.

Mish says the changes were needed to serve buyers of high-margin specialty chemicals. The previous management structure had promoted a "corporate manufacturing mentality" which was better suited to commodity-type products. "It was a very complex situation going in," he says. "There was a lot of uncertainty within the various teams."

The "boutique" consultant hired to follow up on the internal analysis was Wilmington, Del.-based Supply Chain Consultants. Its task was to conduct a more in-depth analysis and provide expertise that National Starch lacked internally. Members of the consultancy spent a week introducing themselves to staff at the client's headquarters in Bridgewater, N.J., as well as globally.

SCC knew it was important to take it slow. Director of marketing Dave Wonderling evokes the FUD Factor-standing for Fear, Uncertainty and Doubt-which accompanies nearly every major software implementation or corporate restructuring. Adds Dominick Corigliano, vice president of marketing: "People don't want to change unless they feel it's in their best interest."

SCC then launched its own analysis of National Starch's supply chain. The firm was careful to sketch out what the new organization should look like, what kind of changes would be needed to meet that goal, and what benefits would accrue to the company as well as the individuals within it. SCC encouraged internal staff to express their opinions, even as it gave them "ownership" of the process, says Corigliano. In that way, it tempered resistance to change.

The firm stressed continuous education and training to bring everyone on board. "We don't just hand people a manual," says Wonderling. At the same time, SCC follows a well-defined, multi-step process which validates each stage and "institutionalizes" every change. For example, when implementing a new sales and operations planning system, SCC will gather data from multiple systems, and cleanse that data with an eye toward establishing "one version of the truth." Then it will begin generating reports that analyze the client's customers, order fill rates, and other key supply chain processes. Such a routine might take nine months to complete, Corigliano says.

National Starch's own project took longer than that. The year-long effort was slowed by the desire to accommodate everyone's opinion. "In hindsight," says Mish, "we probably should have done that in six months." But he believes the extra time helped the company to combat the "passive-aggressive" behavior of individuals who might otherwise have stymied the whole project.

"All in all, I think it was quite a success," says Mish. "I attribute that to our preliminary work and our choice of consultants."

Planning Is Key
In dealing with the human response to change, planning is everything. Change-management expert Jeanenne LaMarsh, chief executive officer and founder of LaMarsh & Associates Inc., has devised a model showing the challenges to be addressed. She starts with the three major types of resistance: against leaving the current state, going to the desired state, and going through the transition. Then she identifies the players in the drama: sponsors, or leaders from the CEO on down; change agents, responsible for planning and execution; and targets, those who will have to change.

Two variables threaten to wreak havoc with any change effort, LaMarsh says: the failure to fully consider the cultural shift and the difficulties of making it, and the history of previous change efforts. It's in the latter category where the BOHICANS dwell. Bombarded by a series of trendy, ineffective programs over the years, they're likely to view the latest attempt as "the flavor of the month."

LaMarsh combats such resistance through a mixture of communications, extending all the way to the warehouse floor; education, to make sure workers can use the new technology or perform their jobs in the new way, and rewards, for those who contribute toward reaching the desired state. Those who block change will see those rewards removed "systematically," LaMarsh says. Others put it more harshly; SCC's Corigliano suggests that opponents of change consider whether their current jobs are "not the right career or position for them."

At all times, management must appeal to individual interest. "What needs to be communicated is what people need to hear," LaMarsh says, "not what change agents want to say."

It never hurts to bring things down to human scale. MIT's Rice offers the story of Lucent Technologies. Back in 2000, the bursting of the internet bubble had left the telecommunications supplier with large amounts of excess inventory. Its plight uncovered numerous process inefficiencies; at one point Lucent was making around 89 different kinds of enclosures for its various products.

Jose Mejia, president of Lucent's Supply Chain Networks business, needed a way to dramatize the problem. He invited all his senior managers to gather at a facility, where he had piled up one box from each of the company's dozens of business units. The sight of those enclosures, all incompatible with one another, prompted managers to reduce the number of platforms to around five, Rice says. Mejia was also fond of placing hundred-dollar bills on warehouse shelves, to dramatize the cost of inventory at rest.

"The information that you might put together for a business case that is compelling to senior executives is not always compelling for the rank and file," Rice says. One way to motivate workers, he adds, is to couch the program in terms of a response to customer demand, not management whim.

Jumping the Gun
Paul Fanella, a partner with Accenture, tells of one company that had engaged another consultant to help cut its procurement costs. The effort led to an extensive renegotiation with the supply base, using competitive solicitations. The company ended up with a slew of new contracts that were supposed to yield big savings. Unfortunately, says Fanella, "they didn't deliver anything. No one was aware of what the contracts were, or which suppliers they were supposed to be working with."

Accenture was called in to clean up the mess. It set up a change-management program which called for creation of a communications portal for the entire company. The portal featured information on approved suppliers for every category of spend. Also included were detailed instructions on shifting to the chosen suppliers, and approving new ones.

"The savings of the program were essentially put on hold until we developed the change-management piece," says Fanella.

The toughest task in change management is dealing with the individuals and groups within a company, Fanella says. All affected parties must be considered, from senior executives to the rank and file. Each manager has internal "customers" as well as outside partners. Workers at the transactional level aren't interested in broad corporate strategy; they want to know how their jobs will be affected. "You have to customize messages and programs to meet those varying needs," says Fanella.

He stresses the importance of measurements that track the performance of departments, teams and individuals. Results can be tied to a worker's bonus or base compensation, or rewards for an entire group. "That does a lot to drive accountability," he says.

Incentives are "a very cheap solution to a very difficult problem," says Ann Grackin, chief executive officer of ChainLink Research. Yet many executives fail to account for what their employees need to in order to feel motivated. Rewards can be as simple as a cruise for a particular team, or even cash bonuses, she says.

Accountability goes hand-in-hand with incentives. But companies can't hold workers responsible for their actions without a well-defined chain of command, Grackin says. Each employee must know exactly how to negotiate the various layers of management in order to resolve any problems. And managers must keep their doors open to feedback from below. Such a setup reduces the possibility that employees will abandon their efforts in frustration, causing a ripple effect throughout the company.
Grackin says managers must factor in the risks inherent in any big change effort. Regular discussion forums and brainstorming can help to reduce the chances of failure, but the possibility must always be kept in mind. And the biggest threat to change is human behavior, not technology, she says.

Resistance to change might seem endemic to any organization, but companies are finally turning their attention to the problem. Fanella says they are just beginning to target the human factor in supply chain transformation, through carefully planned programs that identify the roles of all employees and how they will be impacted by new processes.

"Awareness has exploded in the last five years," agrees LaMarsh. "People have finally figured out that these changes need to be managed."