With so much being written and discussed about supply chain transformation, it’s good to remind ourselves what supply chain management is fundamentally about. Lora Cecere (@lcecere), Founder and CEO of Supply Chain Insights, bluntly states, “The best supply chains are fit for function.”[1] She goes on to note that today’s supply chains need leadership not management. She quotes business guru Thomas J. Peters (@tom_peters) who once stated, “Management is about arranging and telling. Leadership is about nurturing and enhancing.” What supply chain leaders need to do, Cecere insists, is “start by defining value.” She reminds leaders that “value” changes constantly; as a result, she writes, “As the value chain shifts, the design should change as well.” She goes on to note that leaders won’t know when the value chain shifts unless they are monitoring “the impacts of volatility and variability in their modeling.” In order to achieve that goal, companies need to move from Excel spreadsheets to cognitive technologies with embedded advanced analytics. She asks, “Will the digital supply chain be the answer?” Her answer, “I don’t think so. Let me explain. While companies speak of the digital supply chain, the focus is on speeding up today’s supply chain or making it paperless, but not the redesign of the supply chain market-to-market to drive value.” In other words, digital transformation is not about buying technologies, it’s about using technologies the right way.
The basics of supply chain management (SCM)
Chris Dunakin, a business developer at 6 Rivers Systems, writes, “Supply chain management is the process of organizing and overseeing supply chain activities with the goal of achieving (or maintaining) a competitive advantage. The heart of a company’s operations, supply chain management deals with every process from the acquisition of raw materials through the final product.”[2] The staff at Advanced Transportation Systems (ATS) adds, “Supply chain management deals with the procedures encompassing sourcing components a company requires to develop its products or service to deliver the end product to customers. If you want to develop a robust SCM strategy, you have to look at the entire ecosystem. Such a vantage point drives you to bring together the various end-to-end processes necessary to create economic and market value for the firm.”[3] The “entire ecosystem” involves more than the processes of a single organization. Cecere asserts that collaboration is a key to SCM success. She explains, “The term collaboration, while bandied about incessantly, is seldom implemented.” She defines collaboration “as multiple parties working together on a win/win value proposition.” She goes on to note that the pandemic has provided a receptive environment for collaboration. “As I interview companies working through COVID-19 challenges,” she writes, “a key insight is companies are more willing to collaborate together in the pandemic. These unprecedented times offer the time to build value networks and share data to build meaningful process capabilities.”
The ATS staff notes, “For any SCM strategy to succeed, it must rely on and leverage six critical aspects that drive the entire process.” Those critical processes are:
1. Planning. “Planning an SCM strategy involves creating a design of the entire process that best works for you. You need to correctly identify the resources you will require to satisfy your customer’s demand.” Don’t forget Cecere’s insight that great SCM strategies “start by defining value.”
2. Sourcing. “You need to identify the most effective suppliers for your primary input. Once you contract the suppliers who best work for you, the job has only begun. You will find the need to monitor and manage the relationship with each supplier continually.” There is a difference between managing a relationship and having a collaborative relationship. Like Cecere suggests, you need to make your relationships win/win.
3. Making. “Each supply chain manager needs to supervise the taking in of raw materials, making and testing of the product or service and shipping it. To ensure that you always deliver quality to your customers, you need to include quality testing at this stage. On top of that, you must develop means through which you can measure the output and the team’s productivity. If you don’t, the quality of your end product won’t be as consistent.” Cecere writes, “Align the functional metrics to reliability and drive cross-functional collaboration on a few and meaningful metrics (growth, market share, margin, inventory turns, ROIC, and on time and in full shipments).”
4. Delivering. “Delivery, also called logistics, is where you put the finished product or service into the customer’s hands. With delivery, you coordinate your client’s order, dispatch the items, invoice your customer, and receive incoming payments. For many firms, this is the stage at which they outsource much of the work to third parties. If your product or service calls for special handling, then outsourcing can help you better retain focus on your core operations.” Choosing the right logistics provider is critical since the firm that delivers your product to your customer is the last chance you have to impress.
5. Returning. “Not every item you ship will work like a charm, and you need to create a mechanism to help your customer with returns. A flexible yet responsive network that handles defective or excess products is therefore critical to your supply chain.” The age of e-commerce has become the age of returns. Up to 30% of products bought online are returned. Too many companies overlook this critical part of SCM.
6. Enabling. “For a supply chain to operate at optimal levels, there needs to be continual monitoring. You will, therefore, rely on several enabling processes to track information and assist in your compliance efforts. These processes include human resources, information technology, finance, portfolio management, among others.” Cognitive technology solutions, like the Enterra Supply Chain Intelligence System™, can help assure all parts of the supply chain remain in alignment.
Concluding thoughts
A great supply chain management strategy increases value. The staff at the Association of Equipment Manufacturers (AEM) notes, “Traditional supply chain priorities — maximizing efficiency and minimizing cost — are quickly becoming obsolete.”[4] They go on to note, “Historically, leading supply chain management professionals have recognized business volume — or, more specifically, the ability to consolidate more business with fewer suppliers — as the only viable way to drive competition and achieve lower prices and better service levels. That’s no longer enough, as many companies have discovered. Instead, organizations today — those of all types, sizes and industries served — are slowly, but surely starting to realize it’s far more important to be able to share accurate, timely and relevant information about part and assembly demand across a supply chain ecosystem.” Cognitive technologies can help achieve that goal and help turn supply chain managers into supply chain leaders who create value as well as make supply chains more effective and efficient.
Footnotes
[1] Lora Cecere, “Supply Chain Leaders Rearranging Deck Chairs? Yes, I Think So.” Supply Chain Shaman, 19 July 2020.
[2] Chris Dunakin, “What is supply chain management?” 6 Rivers Systems Blog, 24 June 2019.
[3] Staff, “What is Supply Chain Management, and Why is it Important?” Advanced Transportation Systems, 25 February 2020.
[4] Staff, “Supply Chain Management 101 — Think Beyond Chasing Efficiency and Cutting Costs,” Association of Equipment Manufacturers, 23 November 2020.
