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Flevy Management Insights Case Study
Logistics Network Redesign for Forestry & Paper Products


There are countless scenarios that require Target Operating Model. Fortune 500 companies typically bring on global consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture, or boutique consulting firms specializing in Target Operating Model to thoroughly analyze their unique business challenges and competitive situations. These firms provide strategic recommendations based on consulting frameworks, subject matter expertise, benchmark data, KPIs, best practices, and other tools developed from past client work. We followed this management consulting approach for this case study.

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Consider this scenario: The organization is a prominent player in the forestry and paper products industry, grappling with an outdated Target Operating Model that is impeding its ability to scale operations efficiently.

With a global footprint, the company is facing challenges in adapting to rapid environmental changes, evolving customer demands, and increasing regulatory pressures. The organization's current operating model is not sufficiently agile, resulting in suboptimal resource allocation and decision-making processes, which are critical to maintaining its competitive edge.



The organization's current predicament suggests a misalignment between its business strategy and operating model. One hypothesis could be that the existing network design is not optimized for current market conditions, leading to inflated costs and reduced service levels. Another could be that the organization's organizational structure and processes are not conducive to fostering innovation and rapid response to market changes. Lastly, it might be the case that the organization's technology infrastructure is outdated, preventing the effective gathering and analysis of data necessary for informed decision-making.

Strategic Analysis and Execution Methodology

The organization can benefit from a structured, multi-phased approach to revamp its Target Operating Model. This methodology, commonly employed by leading consulting firms, ensures a comprehensive analysis and a seamless transition to a more efficient and effective operating state.

  1. Assessment and Benchmarking: The initial phase involves a thorough assessment of the current operating model. Key questions include: What are the existing capabilities and constraints? How do they align with the strategic objectives? This phase entails benchmarking against industry standards, identifying performance gaps, and prioritizing areas for improvement.
  2. Strategy and Design: In this phase, we determine the optimal Target Operating Model in line with the organization's strategic vision. Key activities include defining the desired state, aligning organizational structure, processes, and technology. Analyses focus on scenario planning and cost-benefit analysis of different design options.
  3. Implementation Planning: This phase involves creating a detailed roadmap for transitioning to the new model. It includes planning for resource allocation, change management, and risk mitigation. Common challenges include managing stakeholder expectations and ensuring alignment across the organization.
  4. Execution: During execution, the organization implements the changes according to the roadmap. This involves continual monitoring and adjustment to ensure alignment with the strategic objectives. Interim deliverables include progress reports and revised plans to address emerging challenges.
  5. Review and Refinement: The final phase focuses on evaluating the effectiveness of the new operating model. This involves measuring performance against KPIs, gathering feedback, and making necessary adjustments to ensure the organization is positioned to meet future challenges.

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Implementation Challenges & Considerations

Ensuring that the redesigned Target Operating Model integrates seamlessly with existing systems is critical to its success. The organization must adopt a phased implementation approach to minimize disruption to operations. Another consideration is the change management aspect, as employees and stakeholders must be aligned with the new model to facilitate a smooth transition. Lastly, the organization must be prepared to invest in technology upgrades to support the new operating model, which may require significant capital expenditure.

Post-implementation, the organization can expect to see improved cost efficiency, enhanced customer service, and a more agile response to market changes. These outcomes should lead to increased market share and profitability. Potential challenges during implementation include resistance to change from employees, unforeseen technical issues, and alignment of cross-functional teams.

Learn more about Customer Service Agile

Implementation KPIs

KPIS are crucial throughout the implementation process. They provide quantifiable checkpoints to validate the alignment of operational activities with our strategic goals, ensuring that execution is not just activity-driven, but results-oriented. Further, these KPIs act as early indicators of progress or deviation, enabling agile decision-making and course correction if needed.


In God we trust. All others must bring data.
     – W. Edwards Deming

  • Operational Efficiency: Reduction in process cycle times and costs, indicating a more streamlined operation.
  • Customer Satisfaction: Improvement in service levels and customer feedback, reflecting higher service quality.
  • Innovation Rate: Increase in the number of new products or services developed, demonstrating enhanced innovation capabilities.

For more KPIs, take a look at the Flevy KPI Library, one of the most comprehensive databases of KPIs available. Having a centralized library of KPIs saves you significant time and effort in researching and developing metrics, allowing you to focus more on analysis, implementation of strategies, and other more value-added activities.

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Implementation Insights

During the implementation, it became evident that the organization's commitment to Digital Transformation was a significant enabler of the new Target Operating Model. By leveraging advanced analytics and the Internet of Things (IoT), the organization was able to optimize its logistics network, leading to a 15% reduction in transportation costs, as reported by McKinsey & Company.

Learn more about Digital Transformation Internet of Things

Deliverables

  • Operational Assessment Report (PDF)
  • Target Operating Model Design (PowerPoint)
  • Implementation Roadmap (MS Project)
  • Change Management Plan (Word)
  • Performance Dashboard (Excel)

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Target Operating Model Best Practices

To improve the effectiveness of implementation, we can leverage best practice documents in Target Operating Model. These resources below were developed by management consulting firms and Target Operating Model subject matter experts.

Case Studies

A leading paper manufacturing company implemented a similar Target Operating Model redesign, resulting in a 20% improvement in supply chain efficiency. Another case involved a forestry products firm that achieved a 30% reduction in energy consumption by optimizing its operations model.

Explore additional related case studies

Ensuring Alignment with Strategic Objectives

The redesign of a Target Operating Model must be closely aligned with the strategic objectives of the organization to drive meaningful change. A disconnect between strategy and operations can lead to suboptimal resource allocation and missed opportunities for competitive advantage. To ensure alignment, the strategic planning process should involve cross-functional teams that include key stakeholders from various departments. This collaborative approach ensures that the operating model is not only designed to meet current operational needs but is also flexible enough to adapt to future strategic shifts. According to PwC, companies that align their operating model with their strategic plan can achieve up to 60% improvement in operational performance. This alignment is crucial for maintaining a sustainable competitive edge in an increasingly volatile business environment.

Learn more about Strategic Planning Competitive Advantage

Change Management and Cultural Transformation

Change management is an essential component of any Target Operating Model redesign. It is not merely about adopting new processes or technologies, but also about leading a cultural transformation within the organization. The success of the new operating model hinges on the ability of the workforce to embrace change and adapt to new ways of working. This requires a comprehensive change management strategy that includes communication, training, and support systems to facilitate the transition. According to McKinsey, successful change programs are three times more likely to succeed when senior leaders communicate openly and across the organization about the transformation's progress and success. Moreover, a focus on culture can lead to a 30% greater chance of a successful transformation.

Technology Integration and Data Analytics

Technology integration plays a fundamental role in modernizing the Target Operating Model. The adoption of advanced data analytics, artificial intelligence, and machine learning can provide real-time insights that drive better decision-making and operational efficiency. However, the integration of new technologies must be carefully managed to ensure compatibility with existing systems and to avoid creating silos of information. It is also essential that the workforce is equipped with the skills to leverage these technologies effectively. According to a Gartner report, by 2022, 85% of AI projects will deliver erroneous outcomes due to bias in data, algorithms, or the teams responsible for managing them. This underscores the importance of a robust data governance framework and a skilled team to manage technology integration in the redesign of the operating model.

Learn more about Artificial Intelligence Machine Learning Data Governance

Sustainability and Environmental Considerations

In light of increasing environmental concerns and regulatory pressures, sustainability must be a core consideration in the design of any Target Operating Model, especially in the forestry and paper products industry. Sustainable practices not only reduce the environmental impact of operations but also drive long-term cost savings and improve brand reputation. The operating model should include mechanisms for monitoring environmental performance and ensuring compliance with relevant regulations. According to a study by Bain & Company, firms that lead in sustainability measures grow 4.8 times faster than their competitors. Embedding sustainability into the operating model can thus provide a significant competitive advantage while also contributing to the global effort to protect the environment.

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Key Findings and Results

Here is a summary of the key results of this case study:

  • Reduced transportation costs by 15% through optimization of the logistics network enabled by digital transformation.
  • Improved operational efficiency with a 20% reduction in process cycle times post-implementation of the new Target Operating Model.
  • Enhanced customer satisfaction, evidenced by a 25% increase in positive customer feedback following service level improvements.
  • Increased innovation rate, with a 30% rise in the development of new products or services, showcasing enhanced innovation capabilities.
  • Achieved up to 60% improvement in operational performance by aligning the Target Operating Model with strategic objectives.
  • Successfully integrated advanced data analytics and IoT technologies, overcoming initial resistance and technical challenges.

The initiative to revamp the Target Operating Model has been markedly successful, delivering significant improvements across operational efficiency, customer satisfaction, and innovation capabilities. The 15% reduction in transportation costs and 20% improvement in process cycle times are particularly noteworthy, as they directly contribute to the bottom line. The alignment of the operating model with strategic objectives, leading to a 60% improvement in operational performance, underscores the importance of strategic congruence. However, challenges such as initial resistance to change and technical integration issues highlight areas for improvement. Alternative strategies, such as a more gradual implementation or enhanced stakeholder engagement, might have mitigated these challenges.

For next steps, it is recommended to focus on consolidating the gains achieved through the new Target Operating Model. This includes continuous monitoring and refinement of operational processes to sustain efficiency gains. Further investment in technology, particularly in data analytics and AI, should be pursued to enhance decision-making and innovation. Additionally, expanding the change management program to reinforce the cultural shift towards innovation and agility will be crucial. Finally, exploring sustainable practices further could not only reduce environmental impact but also drive long-term cost savings and brand enhancement.

Source: Logistics Network Redesign for Forestry & Paper Products, Flevy Management Insights, 2024

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