The Future of Supply Chain Management, Part 8

Stephen DeAngelis

January 7, 2013

Mark Woodward, CEO of E2open, is another bold prognosticator willing to go on record with his predictions about the coming year. If you don’t believe there is enough networking going on already, you’ll love Woodward’s predictions. They center on a single theme: 2013 is going to be the year of the network. [“5 Supply Chain Predictions For 2013, The Year Of The Network,” Forbes, 18 December 2012] He writes:

“Stanford Professor Hau Lee says that competition is supply chain versus supply chain. With today’s prevalent business model of brand owners embracing trading networks of outsourced manufacturing and distribution, one could argue that it’s now trading network versus trading network. The secret to success here is how well brand owners and their trading partners can collaborate — moving beyond the archaic one-to-one manual sharing of spreadsheets to achieve one-to-many and many-to-many visibility based on real-time information across a network that provides a single source of truth.”

In that opening statement, Woodward underscores three themes that I have stressed over the past several years. First, supply chains are the business not peripheral to it; second, supply chains are really supply networks; and, finally, collaboration and visibility are two sides of the same coin. The point Woodward is making is that if you don’t understand those three relationships, you’re likely to lag behind your competition in the years ahead. He continues:

“Harnessing the collective brainpower of a trading network’s supply chain practitioners and leaders provides a formidable competitive advantage and the kind of agility and flexibility needed to handle an increasingly volatile world. This is the derivative factor – the speed at which the trading network can adapt to a new opportunity, business model, or product introduction. Smart people, all working together with timely, accurate data on a platform that coordinates business processes across the global network can make faster, better decisions that provide more profit for them and more satisfaction for their customers.”

Of course, that is easier said than done. It would be a lot easier if all trading partners had exclusive relationships; but they don’t. That means that proprietary information needs to be protected even as it is shared among partners. Data formats, language and monetary differences, legacy technologies, and/or lack of technologies can all complicate matters. Nevertheless, Woodward is correct in his assessment that the future belongs to the companies that can best harness the power of networking. With that basic theme, Woodward examines “some interesting supply chain trends … on the horizon for 2013.” The first trend deals with the speed, rather than the size, of data. He writes:

Fast Data Will Become the New Big Data — Big Data is everywhere, and we deal with our fair share in today’s complex manufacturing environments. But what is perhaps more daunting is Fast Data – that is, the incessantly changing positions of forecasts, orders, shipments and inventory. This challenge is complicated enough within the virtual enterprise, and becomes downright overwhelming in the context of global trading networks – with multiple tiers of partners trying to manage information changes across unique operating systems. In order to reap the benefits of Fast Data, all relevant participants – within the organization and across the global trading network – need to have access to a ‘shared version of the truth,’ plus the ability to act on this information in real time. Put differently, Fast Data must be collaboratively managed – shared; agreed upon in terms of source, authenticity, and timeliness; correlated across relevant roles and processes; and understood within the context of actionable opportunities.”

One of the things that Bob Ferrari wrote about in his predictions for the coming year (see Part 4 and Part 5 of this series) is the “current rapid clock speed of business.” It’s fast and getting faster. Woodward stresses the importance of real-time information because successful companies will be those that act on such information faster than their competition. As Woodward puts it:

“In the sea of information flying around the network, where is that one indicator that has ‘turned red’ – that will ruin our day, week, or quarter unless we identify and resolve it quickly, intelligently, and cost-effectively?”

A good big data analytic system will automate the process of looking for that red indicator and will then alert decision makers when it is found. This kind of management-by-exception system frees practitioners to concentrate on other pressing tasks. The next topic addressed by Woodward is one previously addressed by Adrian Gonzalez and Steve Banker: social media and the supply chain (see Part 3 of this series). Woodward writes:

The ‘Social Supply Chain’ Will Transform the Way We Work — When it’s doing what it’s supposed to, the supply chain function is collaborative – people (and companies) working together to meet the needs of their customers. It’s also profitability minded, which doesn’t always ‘play nicely’ with real collaboration across enterprises. But the ability to be both collaborative and profitable will take center stage in 2013 as two areas of social networking move quickly into the supply chain space. First is collaborative problem solving. Over the next 12 months, online partner communities will create virtual war rooms where teams can solve problems quickly and collaboratively. They’ll also create online repositories to document processes and decisions for future reference and organizational learning. Second, demand sensing and sentiment analysis will move upstream from Marketing to Supply Chain, generating earlier awareness of trends (either positive or negative) for better preparedness and responsiveness.”

If Woodward is correct, the best supply chains will finally move from being cooperative to collaborative. That’s a big (and important) step. Every supply chain analyst I know believes that such a transformation needs to be made. The rise of social technologies is making this transformation easier to achieve (if people will use them). Woodward concludes:

“Companies that embrace social tools will have another dramatic advantage. As the supply chain talent gap worsens, the more socially-minded companies will be able to attract the best and most innovative minds of the next generation—a generation that has always approached learning and communication in the context of social networks.”

To read more about the “talent gap” raised by Woodward, read my post entitled More Supply Chain Talent Needed. Woodward’s next prediction deals with supply chain control towers.

Supply Chain Control Towers Will Transition From Concept to Adoption — The buzz around Supply Chain Control Towers has been building for a while now; I predict that 2013 will be the year that Control Towers move from concept to reality. This transition has already begun, and it will continue to gain momentum as practitioners adopt a more accurate understanding of the concept: a Supply Chain Control Tower … is not a ‘cure all’ product that can be purchased and installed; instead, it is a core competency in end-to-end collaboration and process management that facilitates good decision making based on the best available information. Within this framework, Supply Chain Control Towers should provide real-time transparency and exception management, tools for operational and financial evaluation of potential course corrections, and an integrated system for decision execution. This type of ‘core competency’ requires a dynamic combination of people, processes, and technologies, and it is developed (and continuously improved) over the course of months and years—not days. That being said, 2013 is the perfect time to begin the Control Tower journey.”

To learn more about the concept of control towers, read my post entitled Have You Heard about Supply Chain Control Towers? Woodward’s next prediction deals with costs.

Dynamic Cost Will Transform Decision Making — Historically, decision making and performance management have been based on standard costs. These costs are usually provided by the Finance organization and are updated infrequently (i.e., annually or when a new product is introduced). The challenge to effective management is that the actual costs of products, as delivered to individual customers, are rarely ‘standard.’ A better measure is total landed cost, which incorporates shipping and distribution costs. But these costs themselves are often based on standards or averages, despite wide swings in actual costs in response to the supply of, and demand for, transport, the cost of bunker fuel, or other factors. 2013 will see a shift to greater use of dynamic costing, based on real-time visibility into granular information on product production, transportation, and distribution costs. When companies can see the actual costs of delivering specific products to particular customers building in real time, they will be well-positioned to make the right customer-specific tactical decisions and to enable more profitable segmentation strategies.”

Dynamic costing is a perfect fit for artificial intelligence systems that can use intelligent agents to search for actual cost data and provide it to decision makers via user-friendly interfaces. Information that is not used (or too difficult to locate) is little better than having no information at all. Woodward’s final prediction is about risk management.

Risk Management Will Move from Static to Dynamic — Most risk management modeling today involves offline contingency planning based on statistical likelihood of occurrence data. Over the next 12 months, I predict significant movement away from the relatively static realm of risk management theory towards the ‘real-world dynamism’ of today’s integrated supply chain business models. Specifically, the next phase of risk management will operationalize risk identification and reduce the time it takes to respond intelligently to disruptions across the trading network. By incorporating contingency plans into dynamic operating models with network monitoring, practitioners will be able to make better decisions within the execution window. Risk management tools will move beyond identifying weak links and ginning up responses to hypothetical problems to providing the information and communication platform needed to assess and manage situations as they occur—mitigating downside when the inevitable hits the fan.”

As I understand it, Woodward is recommending the adoption of “what if” scenario planning to augment traditional risk management systems as well as maintaining an around the clock risk management process that can respond very quickly when bad things happen. I hope he’s correct; however, the evidence isn’t very supportive. For more on that subject, read my post entitled Supply Chain Disruptions Are Growing More Serious but Risk Management isn’t Keeping Pace.

In the next segment of this series looking at the future of the supply chain, I’ll discuss some interesting predictions about new kinds of “commodities” that could be ripe for smuggling and sale on the black market in the years ahead.