Ask most supply chain leaders what their operating model is, and you'll get one of two responses. The first is a blank look followed by something about the org chart. The second is a detailed description of their technology stack. Neither answer is right. An operating model is not an organisational structure, and it's not a set of systems. It's the blueprint for how a supply chain actually works — how decisions get made, where accountabilities sit, how processes connect across functions, what gets measured, and how people and technology work together to deliver outcomes.
Most supply chain operating models aren't designed. They're inherited. They evolve through a succession of reorganisations, system implementations, acquisitions, and responses to crises. The demand planning process works one way because that's how it was set up when SAP went in eight years ago. The procurement team reports to finance because of a restructure three CEOs ago. The warehouse operates semi-independently because it was an acquisition that was never fully integrated. Each individual decision may have been reasonable at the time. But the cumulative effect is an operating model that nobody designed, that doesn't align with the current business strategy, and that creates friction, duplication, and gaps that cost real money and slow everything down.
The McKinsey Global Supply Chain Leader Survey has consistently found that nine in ten organisations report supply chain challenges in a given year. Gartner's Future of Supply Chain 2025 report reveals that only 29% of supply chain organisations have embraced at least three of the five key characteristics that define future readiness. These numbers aren't just about external disruption. A significant portion of what organisations experience as supply chain "problems" are actually symptoms of an operating model that doesn't work — unclear decision rights, disconnected planning processes, misaligned metrics, and structural gaps between functions that should be working in lockstep.
This article is about what a well-designed supply chain operating model actually looks like, why it matters, and how Australian organisations can close the gap between what they have and what they need.
What an operating model actually is
A supply chain operating model answers a set of foundational questions that most organisations have never explicitly addressed.
The first is scope: where does the supply chain function begin and end? Does it include procurement, or does procurement sit elsewhere? Does it extend to customer fulfilment and last-mile delivery? Does it encompass manufacturing operations, or only planning and logistics? The answer varies by organisation, but what matters is that it's deliberate — that someone has consciously decided where the boundaries sit and how the interfaces across those boundaries work.
The second is governance: how do decisions get made? Who has authority over inventory policy? Who resolves the tension between customer service levels and cost? Who decides when to accept a customer order that the supply chain can't currently fulfil? Who owns the trade-off between holding safety stock and risking stockouts? In organisations without a clear operating model, these decisions either get escalated to people who don't have enough context to make them well, or they get made implicitly by whoever happens to be in the room — which leads to inconsistency, finger-pointing, and suboptimal outcomes.
The third is process: what are the core end-to-end processes, how do they connect, and who owns each one? A supply chain has a relatively small number of critical processes — demand planning, supply planning, procurement, order management, warehousing and distribution, and the integrating process that sits above all of them (typically S&OP or IBP). In a well-designed operating model, each process has clear ownership, defined inputs and outputs, established cadences, and explicit connections to the processes it feeds and that feed it. In most organisations, these processes exist but aren't connected — demand planning runs on a different cycle to supply planning, procurement operates independently of both, and the S&OP meeting is a monthly ritual where people share information but don't actually make decisions.
The fourth is organisation: how are people structured, and what capabilities does the function need? This is the piece most people jump to first — the org chart. But the org chart should be the output of the operating model design, not the starting point. Structure follows strategy, and in the supply chain, structure should follow the answers to the previous three questions. Get the scope, governance, and process design right, and the right organisational structure usually becomes obvious. Start with the org chart, and you're likely to design something that perpetuates the existing problems.
The fifth is technology: what systems and data are needed to enable the operating model? Again, technology should serve the model, not define it. The right technology configuration depends on what the operating model requires — which decisions need real-time data, which processes need to be automated, where manual intervention adds value, and how information needs to flow across functions and between the organisation and its suppliers, customers, and logistics partners.
And the sixth is performance: how does the organisation know whether the operating model is working? What gets measured, how frequently, and by whom? How are trade-offs between competing objectives — cost versus service, speed versus efficiency, risk versus cost — quantified and managed? Performance management sounds straightforward, but in practice it's where most operating models fall apart, because organisations measure activity rather than outcomes, or measure the right things but at the wrong level, or measure everything and therefore nothing.
Why it matters now
Australian supply chain functions are under more pressure than at any point in recent memory. The combination of tariff volatility, geopolitical complexity, rising customer expectations, sustainability reporting requirements, and persistent cost pressure means that the supply chain is being asked to deliver on multiple, often competing objectives simultaneously.
Gartner's research shows that 60% of C-level executives view the external environment as unfavourable to business performance, with reduced demand and accelerated inflation identified as the most significant pressures. CSCOs are being asked to shift from reactive cost-cutting to proactive cost leadership — which requires governance, transparency, and accountability that most supply chain operating models simply don't provide.
At the same time, the talent market is tight and getting tighter. Jobs and Skills Australia's 2025 Occupation Shortage List shows that 29% of assessed occupations are in national shortage. The Supply Chain and Logistics Association of Australia has highlighted an emerging "skills cliff" — not just a shortage of warehouse labour and truck drivers (which persists), but an accelerating gap in data analytics, automation, systems engineering, and the hybrid technical-operational roles that modern supply chains require. The World Economic Forum's 2025 Future of Jobs Report reinforces ongoing global shortages in supply chain skills. Companies that can't attract or retain talent in a tight market need an operating model that makes the most of the people they have — one that puts the right people in the right roles, eliminates waste in how people spend their time, and uses technology to amplify human capability rather than create additional administrative burden.
The organisations getting ahead are treating their operating model as a strategic asset, not an administrative inheritance. Gartner's research categorises the most successful supply chain organisations as following a "Design" pathway — proactively investing in long-term capability and deliberate strategy rather than reacting to short-term pressures. Those organisations have embedded agility, resilience, and integration as structural features of how they operate, not just aspirational goals.
The six elements of a well-designed operating model
1. A planning architecture that actually integrates
The heart of a supply chain operating model is its planning architecture — the set of interconnected processes that translate business strategy and customer demand into operational execution. In most organisations, this architecture has three layers: strategic planning (network design, capacity planning, long-range sourcing — typically 1-5 year horizons), tactical planning (S&OP or IBP, demand planning, supply planning — typically 1-18 month horizons), and operational execution (scheduling, order management, warehouse operations, transport — daily to weekly horizons).
The critical word is "interconnected." Each layer should feed and constrain the layers below it — strategic decisions about network configuration should shape the parameters within which tactical planning operates; tactical plans should set the guardrails for operational execution. And information should flow upward — execution reality should inform tactical plans, which should inform strategic reviews.
In practice, these layers are usually disconnected. Strategic network reviews happen once every few years (if at all). The S&OP process runs monthly but doesn't connect to the financial planning cycle. Operational execution proceeds largely independently, reacting to whatever arrives in the order book. The result is a supply chain that's perpetually misaligned — strategic intent doesn't translate into operational reality, and operational reality doesn't inform strategic direction.
The most mature organisations have evolved their planning architecture toward Integrated Business Planning, where demand and supply planning connects directly to financial planning and strategic objectives. McKinsey's research on mature IBP practitioners shows they enjoy meaningfully better performance on metrics including forecast accuracy, inventory turns, customer service, and margin. But achieving this requires more than implementing planning software — it requires redesigning how planning decisions actually get made, who's in the room when they're made, and what information those people have access to.
2. Clear governance and decision rights
The most common symptom of a dysfunctional operating model is that nobody knows who decides. Not in theory — most organisations have RACI matrices filed somewhere. In practice: when the sales team accepts a large order that exceeds available capacity, who decides whether to expedite production (at cost), delay other orders (with service impact), or push back on the customer? When inventory levels exceed target, who decides whether to adjust production, run promotions, or write down stock? When a key supplier signals a potential disruption, who decides how to respond?
In well-designed operating models, these decisions are pre-allocated. Decision rights are defined not just at the process level but at the decision level — and they distinguish between decisions that should be made locally (by the person closest to the situation), decisions that need cross-functional alignment (because they involve trade-offs between competing objectives), and decisions that need executive escalation (because they're material or precedent-setting).
This governance architecture also includes the forums where cross-functional decisions get made — S&OP meetings, supply reviews, risk committees — with clear terms of reference, decision authority, escalation pathways, and, critically, accountability for outcomes. Too many S&OP processes are information-sharing sessions, not decision-making forums. The difference between a functional and dysfunctional S&OP is not the quality of the data deck — it's whether real decisions get made in the room and whether the people making them have the authority and information to make them well.
3. End-to-end process integration
A supply chain operating model must define the core end-to-end processes and, more importantly, the interfaces between them. The processes themselves are well-understood: plan-to-produce, source-to-pay, order-to-deliver, forecast-to-fulfil. The SCOR model provides a useful reference framework, organising supply chain processes across five areas — plan, source, make, deliver, return — with standardised metrics at each level.
But knowing what the processes are is not the same as having them work together. The most common breakdowns occur at the handoffs: between demand planning and supply planning (where forecast assumptions don't translate into executable production plans), between procurement and operations (where sourcing decisions are made without understanding manufacturing constraints, or vice versa), between planning and execution (where the plan says one thing but the warehouse or transport team does something different because they lack visibility or capability to execute the plan), and between supply chain and commercial functions (where customer commitments are made without understanding supply implications).
Process integration means that each process has defined inputs, outputs, owners, and cadences — and that the outputs of one process reliably become the inputs of the next. It means that the interfaces between processes are explicit, governed, and measured. And it means that when processes change (because the business changes, or technology changes, or the external environment changes), the interfaces are deliberately redesigned rather than left to break.
4. An organisational structure that follows the model
Once scope, governance, and processes are defined, the organisational structure should reflect them. There are three broad archetypes for supply chain organisation, and the right choice depends on the business context.
A centralised model works best when products across business units are similar, when geographic concentration allows shared services, and when leverage and consistency are the primary objectives. Centralisation enables standardised processes, leveraged procurement spend, unified planning, and consistent performance management. But it can be slow to respond to local market conditions and can feel distant from the operational reality of individual business units.
A decentralised model works best when business units are genuinely independent — different products, different markets, different supply chain characteristics. Decentralisation enables responsiveness, local accountability, and deep category expertise. But it sacrifices leverage, creates duplication, and makes it difficult to share best practices or maintain consistent performance standards.
The model that works best for most multi-business-unit organisations in Australia is what practitioners call a centre-led or federated model — where a central supply chain function sets strategy, defines standards, manages enterprise-level processes (like S&OP and strategic sourcing), and governs performance, while business unit or regional supply chain teams execute within those frameworks with appropriate autonomy. Gartner's research reinforces this, recommending that CSCOs consider which activities need enterprise-level integration and which should be differentiated at the business unit level.
The centre-led model requires only a small central team — the authors of the CLAN (Centre-Led Action Network) concept estimated 3-4 people per functional discipline — but it requires that team to be highly capable, credible with the business units, and focused on value creation rather than compliance. The central team's job is to make the business units better, not to control them.
Regardless of archetype, the organisational structure must address capability. What skills does the function need? Where are the gaps? How will those gaps be closed — through recruitment, development, automation, or outsourcing? Given that supply chain skills remain in shortage in Australia (SEEK lists over 3,000 supply chain data analyst roles alone), the capability plan needs to be realistic about the talent market and creative about how to build capability in ways that don't depend solely on hiring people who don't exist in sufficient numbers.
5. Technology that enables rather than constrains
A supply chain operating model should define what technology is needed, not start with what technology is available. In practice, most organisations do it backwards — they implement an ERP system, a WMS, a TMS, and various planning tools, and then try to build an operating model around whatever those systems can do. The result is processes shaped by system limitations rather than business needs, workarounds in spreadsheets for what the system can't handle, and technology investments that don't deliver the intended value because the operating model wasn't designed to use them effectively.
The technology component of the operating model should address several questions. What data is needed to support the decision-making architecture? Where does that data come from, and how is its quality maintained? What processes should be automated (because they're high-volume, rules-based, and don't benefit from human judgement) versus technology-assisted (where technology provides information and recommendations but humans make the final call)? Where does end-to-end visibility need to extend — within the four walls, across the domestic supply chain, across the international supply chain, into the supplier base?
Gartner reports that 82% of CSCOs expect to increase investment in supply chain technology over the next two years, and 72% of supply chain organisations have deployed generative AI in some form. But most are experiencing middling results — because the technology is being layered on top of an operating model that wasn't designed for it. Investments in AI-driven demand sensing, control towers, or digital twins deliver their full value only when the underlying operating model defines how those tools integrate with decision-making processes, who acts on the insights they generate, and how their output connects to execution.
6. Performance management that drives behaviour
The final element is performance management — the metrics, targets, reviews, and incentives that tell people what matters and drive behaviour accordingly. This sounds simple but is routinely done poorly.
The most common mistake is measuring too many things. A supply chain dashboard with fifty KPIs measures nothing, because no one can manage fifty metrics simultaneously. A well-designed performance framework has a small number of top-level metrics (typically five to eight) that capture the essential trade-offs the supply chain must manage: cost efficiency (supply chain cost as a percentage of revenue, not an absolute dollar figure — Gartner's research emphasises this distinction), service performance (order fill rates, on-time delivery, customer satisfaction), asset efficiency (inventory turns, working capital, capacity utilisation), risk and resilience (supplier concentration, disruption response time, plan adherence), and increasingly, sustainability (Scope 3 emissions, waste reduction, circular economy metrics — with 67% of CSCOs now accountable for environmental and social sustainability KPIs according to Gartner).
Below these top-level metrics, more detailed operational KPIs cascade to individual process owners. But the cascade should be deliberate — each lower-level metric should connect logically to a top-level outcome, and people should understand the connection between what they're measured on and what the supply chain is trying to achieve.
Equally important is how performance is reviewed. The operating model should define the cadence and forums for performance review — from daily operational huddles to weekly tactical reviews to monthly S&OP meetings to quarterly business reviews. Each forum should have a clear purpose, the right attendees, the right data, and the authority to make decisions. And the performance framework should include explicit recognition that some objectives conflict — that pursuing cost reduction may reduce service, that increasing resilience may increase inventory, that sustainability investments may not have short-term financial returns. The operating model should define how those trade-offs are managed, not leave them to individual interpretation.
The common patterns we see in Australian organisations
Having described what good looks like, it's worth naming the patterns that most Australian organisations exhibit — not to be critical, but because recognising the pattern is the first step toward changing it.
The inherited model. The operating model was never deliberately designed. It evolved through successive reorganisations, system implementations, and leadership changes. Individual components may work well, but they don't connect into a coherent whole. Planning, procurement, logistics, and operations each optimise within their silo, and the end-to-end result is suboptimal.
The ERP-shaped model. The operating model is defined by what the ERP system does. Processes follow system workflows rather than business logic. Planning tools are used for transaction management rather than decision support. The system dictates the operating cadence rather than the business need determining what the system should do.
The person-dependent model. The operating model works because of specific individuals who bridge the structural gaps through personal relationships, institutional knowledge, and sheer effort. When those individuals leave — which in a tight talent market, they increasingly do — the gaps they were papering over become immediately visible.
The strategy-execution gap. The organisation has a supply chain strategy, often articulated in a well-crafted presentation. But the operating model — the processes, governance, structure, and capabilities that would need to exist to deliver that strategy — hasn't been designed. The strategy says "demand-driven," but the planning process is still forecast-push. The strategy says "customer-centric," but service levels are managed by product rather than by customer segment. The strategy says "integrated," but procurement, operations, and logistics still report to different executives with different incentives.
The perpetual firefighting model. Teams spend most of their time reacting to urgent operational issues — stockouts, delivery failures, supplier problems, quality issues — and have no bandwidth for the strategic and tactical work that would prevent those issues from recurring. This pattern is self-reinforcing: because there's no time to fix the root causes, the fires keep burning, which consumes more time, which leaves even less capacity for improvement. Breaking this cycle requires a deliberate redesign of how the function spends its time — which is fundamentally an operating model question.
How to get from here to there
Designing or redesigning a supply chain operating model is a significant undertaking. McKinsey estimates that a typical supply chain transformation is an 18-24 month effort requiring motivated leadership, careful sequencing, and substantial investment in change management. It shouldn't be approached lightly — but it shouldn't be deferred indefinitely either, because the cost of operating with a dysfunctional model accumulates every day.
The practical approach involves several phases.
Diagnose the current state honestly. Map the existing operating model — not how it's documented, but how it actually works. Where do decisions actually get made? What processes actually run, on what cadence, with what inputs? Where are the disconnects, duplications, and gaps? Where do people spend their time, and how much of that time is on value-adding work versus firefighting and administrative overhead? This diagnostic phase requires honesty and a willingness to hear uncomfortable truths from the people who live within the current model every day.
Define what the operating model needs to deliver. Start with the business strategy and the supply chain strategy, and translate those into specific requirements for the operating model. If the strategy requires demand-driven responsiveness, the operating model needs short-cycle planning, real-time demand sensing, and flexible execution capability. If the strategy requires cost leadership, the operating model needs rigorous performance management, leveraged procurement, and process standardisation. If the strategy requires resilience, the operating model needs risk visibility, scenario planning capability, and pre-defined response protocols.
Design the target model. Work through the six elements — scope, governance, process, organisation, technology, performance — in sequence. Design the model from the outside in: start with what external outcomes the supply chain needs to deliver (customer service, cost position, working capital, risk profile, sustainability), then design the processes that deliver those outcomes, then the governance that ensures those processes work, then the organisation that staffs them, then the technology that enables them, then the performance framework that manages them.
Plan and execute the transition. A new operating model can't be implemented overnight. It requires a phased approach — prioritising the changes that will have the greatest impact, sequencing structural and process changes so they reinforce each other, investing in training and capability development to ensure people can operate effectively in the new model, and managing the change explicitly through communication, engagement, and support. This is where most operating model redesigns fail — not in the design, but in the execution. The design is intellectually satisfying; the change management is hard, human work.
Embed and continuously improve. An operating model isn't a one-time exercise. It should be reviewed periodically — particularly when the business strategy changes, when significant external changes occur (new markets, acquisitions, regulatory shifts), or when performance data indicates the model isn't delivering as intended. The best operating models include feedback loops that allow for continuous adjustment, not just periodic redesign.
How Trace can help
At Trace, we work with organisations across FMCG and manufacturing, retail and consumer, resources and energy, health and human services, and government and defence to design and implement supply chain operating models that actually work. Our engagements span operating model diagnostics, planning and operations process design (including S&OP and IBP), organisational design and capability assessment, governance framework design, technology strategy and selection, performance framework development, and the change management required to make it all stick.
We're independent — we don't implement ERP systems, sell planning software, or have commercial relationships with technology vendors. That means our operating model recommendations are driven by what your business needs, not by what a particular software platform can do.
We've written previously about why supply chain AI projects fail — and one of the core reasons is that organisations layer technology onto broken operating models and wonder why they don't get results. We've also explored the real cost of reshoring and the most common supply chain problems in Australia. In each case, the operating model is a central factor in whether organisations navigate these challenges well or poorly.
If your supply chain operating model was inherited rather than designed — or if it was designed for a business that no longer exists — it's worth the investment to get it right. Get in touch to discuss how we can help.
Trace Consultants is an Australian supply chain and procurement consulting firm. We help organisations design and deliver supply chain operating models that connect strategy to execution — grounded in deep operational experience and independent of any technology vendor or platform. Visit our insights page for more on the challenges shaping Australian supply chains.
