The world has changed so dramatically that EY analysts Matthew Burton and Joost Vreeswijk assert global supply chains need to undergo a great reset.[1] According to Burton and Vreeswijk, there are five elements that must be considered during this great supply chain reset. In Part One of this article, I discussed the first three elements: 1) Rationalized portfolio; 2) Resilient, circular operating models; and, 3) Segmented supply footprints and challenging traditional management hubs. In the concluding part of this article, I will discuss the final two elements: 4) Automation and cognitive decision support; and, 5) Collaborative relationships built on value — not cost. As I noted in the initial installment of this article, the Oxford Dictionary defines the word reset in two ways: “to set again or differently.” Burton and Vreeswijk clearly opt for the second definition of reset — future supply chains must be different than past supply chains. The final two elements of their great supply chain reset go a long way towards ensuring that the future looks different than the past.
The Final Two Elements of the Great Supply Chain Reset
Automation and cognitive decision support
Nearly two thousand years ago, the Christian theologian Paul wrote, “For now we see through a glass, darkly.”[2] He could have been writing about modern day supply chains. Burton and Vreeswijk explain, “Opacity of traditional supply chains continues to frustrate managers’ ability to increase agility and responsiveness, balance supply with demand, and monitor and improve ESG performance. With supply chain ecosystems becoming ever more complex, human operators need the right automation and cognitive decision support capabilities to gain visibility and control — to improve quality and speed of decision-making.” Let’s be clear — perfect information doesn’t exist. Ambiguities will always confront decisionmakers as they make decisions about future actions. Control is obtained when a cognitive decision-support capability — like the Enterra Global Insights and Decision Superiority System™ (EGIDS™) — let’s decisionmakers view a range of possibilities and potential outcomes that could occur as the business environment changes. EGIDS helps decisionmakers examine hundreds of different scenarios at computer speed so that the best course of action can be selected. Don A. Moore, the Lorraine Tyson Mitchell Chair in Leadership at the Haas School of Business at the University of California at Berkeley, and Max H. Bazerman, the Jesse Isidor Straus Professor of Business Administration at Harvard Business School, explain why this is important. They write, “Think in expected values. The essence of rationality is selecting the course of action with the highest expected value.”[3] Supply chain visibility, and decision support capabilities, require the right data from deep within the supply chain as well as other pertinent market signals. The better the data the better the visibility and the better the decision support.
Being drowned in an ocean of data, however, can lead to information overload resulting poor decisions and/or lost opportunities. To help supply chain professionals deal with information overload, Enterra® is focusing on advancing Autonomous Decision Science™ (ADS®). ADS powers the Enterra System of Intelligence™, of which EGIDS is a part. The Enterra System of Intelligence is a cutting-edge approach that combines the power of a human-like reasoning and trusted generative AI with explainable machine learning and real-world optimization to drive intelligent decision-making and fuel business growth. This unique System of Intelligence acts as an autonomous “brain” within an organization, enabling real-world optimization and decision-making across the value chain at market speed, with the subtle judgment and expertise of an organization’s best subject matter experts and/or data scientists.
Burton and Vreeswijk insist there are other benefits of obtaining the right data and increasing visibility as well. They explain, “Transparency assures consumers, regulators and investors that products are on their way and that sourcing is sustainable, as well as helping avoid compliance fines and enhancing brand and corporate reputation. The ability to map and track suppliers, facilities and products down to raw materials will improve traceability, and allow analysis of supplier compliance, ESG credentials, KPIs and supply chain risks.”
Collaborative relationships built on value — not cost
It’s no secret that the world is getting more complex. Supply chains are no different. Burton and Vreeswijk explain, “Tomorrow’s supply chains will be less linear, involving a more complex, connected network of onshore, friendshore, and farshore players, working as partners and linked into common approaches to circular design, sustainable sourcing, manufacturing, packaging and logistics. Sourcing decisions will be based more upon resilience, rather than merely minimizing costs. Although manufacturers should aim for a diverse range of suppliers to spread geographical and geopolitical risk, they also need sufficient depth of business to develop trusted strategic relationships.” In today’s business world, the word “value” has become an important touchstone. Optimizing costs still matters; however, creating value matters even more. The late creativity guru Edward de Bono once stated, “Companies that solely focus on competition will die. Those that focus on value creation will thrive.” There is a reason that more and more experts refer to global value networks rather than global supply chains.
To create value on the supplier side, Burton and Vreeswijk report, “[Many companies] are reducing their overall supplier base, focusing more on outcomes not transactions, to foster collaborative partnerships, where other members of the value chain are incentivized to innovate and get involved earlier in the product process — ideally at design stage.” Of course, companies also want to create value on the customer side of the chain. Just prior to his passing, the late Harvard Business School professor Clayton Christensen and his colleagues published a book entitled Competing Against Luck: The Story of Innovation and Customer Choice, coauthored by Karen Dillon, Taddy Hall, and David S. Duncan. In the book, they discuss the Theory of Jobs to Be Done. According to the book’s introduction, that theory helps companies understand their “customers’ struggle for progress and then [creates] the right solution and attendant set of experiences to ensure [they] solve [their] customers’ jobs well, every time.” Stated another way, the Theory of Jobs to Be Done suggests that creating value for customers is the best way to compete.
Creating end-to-end value is so important that McKinsey & Company analysts suggest that companies align on value creation.[4] They write, “Take the time to establish a common digital language, learn from other companies that are further along the journey, develop a shared vision among the C-suite, and explicitly agree on a set of commitments that match your ambitions. … Successful companies … focus their efforts on a few important business domains, such as a production process or the customer journey, and transform them from end to end. As many as 80 percent of successful interventions in struggling digital and AI transformations are based on reanchoring the scope to spur a concerted effort against a few well-defined domains.”
Concluding Thoughts
There is a lot of discussion today about the importance of companies being data driven. I’m convinced the most successful companies will be decision driven. As Bain analysts, Michael C. Mankins and Lori Sherer, explain, “The best way to understand any company’s operations is to view them as a series of decisions.”[5] They add, “We know from extensive research that decisions matter — a lot. Companies that make better decisions, make them faster and execute them more effectively than rivals nearly always turn in better financial performance. Not surprisingly, companies that employ advanced analytics to improve decision-making and execution have the results to show for it.” Corporate decisions will be particularly important as they reset their supply chains. Burton and Vreeswijk conclude, “In the great supply chain reset, companies need to reconfigure from linear to segmented, rebalance from primarily offshore to multi-sourcing, and become more resilient by forming longer-term, mutual partnerships. To do this, they should demonstrate critical capabilities in supply chain segmentation, portfolio and lifecycle management, ESG and circularity, ecosystem partnering, data analytics and risk, underpinned by innovation.”
Footnotes
[1] Matthew Burton and Joost Vreeswijk, “How the great supply chain reset is unfolding,” EY, 22 February 2023.
[2] 1 Corinthians 13:12
[3] Don A. Moore and Max H. Bazerman, “Leading with Confidence in Uncertain Times,” Harvard Business Review, 31 August 2022.
[4] Eric Lamarre, Kate Smaje, and Rodney Zemmel, “Rewired to outcompete,” McKinsey & Company, 20 June 2023.
[5] Michael C. Mankins and Lori Sherer, “Creating value through advanced analytics,” Bain Brief, 11 February 2015.
