Transforming the Supply Chain

Stephen DeAngelis

May 10, 2016

“A high-functioning, flexible and agile supply chain is increasingly critical to business success,” asserts Donna Fritz, Vice President of Marketing & Product Management at TAKE Supply Chain. “Yet,” she notes, “many companies think holding off on supply chain improvements when planning enterprise resource management (ERP) changes or upgrades.”[1] Lora Cecere (@lcecere), founder of Supply Chain Insights, is even blunter concerning the importance of a supply for a business. “The supply chain IS Business,” she insists, “not a department within a business.”[2] Terry Volpel believes the term “chain” may be a hindrance for unleashing the full potential of the supply chain. “It’s clear,” he writes, “that the time has come to move beyond a simple ‘chain’ concept.”[3] That’s probably been true for a long time — even the enhanced term “value chain” doesn’t adequately capture the web of relationships that now define today’s supply chains. Unfortunately, some terms enjoy a long life and I suspect that “supply chain” is going to be one of them. Alternative terms like “value network” don’t really work because it doesn’t immediately relay the fact you are talking about supply processes. Supply network is probably a better term. In today’s connected world, however, the modifier “supply” could limit how broadly people need to think about business networks. Once the Internet of Things (IoT) is fully mature it will be nearly impossible (or desirable) to segment networks. Cisco calls this new vision the Internet of Everything. I would like to limit this discussion to supply chain management’s input to the IoT. Volpel believes that the nature of supply “chains” was forever altered nearly three decades ago with the introduction of supply “pyramids.” He explains:

“Simultaneous ‘supply pyramids’ started overlapping and touching. Often multiple tier 1 suppliers were using the same tier 2 suppliers and often they were using similar tier 3 suppliers, and so on. Competitors in a certain tier often joined forces to gain a large client due to the massive investment it took to tool up a particular component. It became vitally important that we got our suppliers talking with each other and the pyramid became more and more like a chain link fence with lateral, vertical and diagonal touch points.”

Things only grew more complicated from there. Jason Busch, from Spend Matters, suggests there are five mega-trends compelling supply chain transformation.[4] They are:

  • Digital disruption. Caused by things like “the Internet of Things (IoT), the mobile revolution, redefining just-in-time (e.g., additive manufacturing) and much more.”
  • Big data and analytics. “Not just … analyzing larger datasets but also the underlying requirements to do so — and what’s possible with big data approaches to procurement.”
  • Social. “Social is not just a type of interaction or a ‘feature’ enabled through solutions, but … it represents a new a way of thinking and using technology.”
  • Financing trade and the supply chain. “Payables and receivables financing do not have to be a zero sum game. It’s a huge opportunity for procurement to take a leadership role given that roughly $7.5 trillion sits on the balance sheets of corporates in the form of payables and receivables that are not intermediated by banks, non-banks or other lenders.”
  • Radical new technology and infrastructure. Everything from cognitive computing to blockchain technologies are changing what’s possible.

Before rushing into the transformation process, Bob Violino cautions an Accenture study found, “U.S. companies are struggling with various innovation pursuits, continuing a problem they’ve been grappling with for the past three years.”[5] It’s not that innovation is bad; rather, corporate approaches to innovation and change management often take unproductive side roads. Violino explains:

“Nearly three-fourths (72%) indicate that their organization often misses opportunities to exploit underdeveloped areas or markets, compared with 53% three years ago. The survey also shows that 82% of the organizations admit that they don’t distinguish their innovation approaches between incremental versus large-scale transformational change. That means they use a single ‘one-size-fits-all’ approach to achieve different goals. Most respondents said they have big innovation ideas but are missing an organizational ‘home’ with the company. As a result, their ideas often go nowhere.”

All of those challenges are addressable and technologies like cognitive computing can help with some of them (like finding new opportunities and integrating data so that all corners of the enterprise are using a single version of the truth). When I deal with clients, I always recommend beginning with a pilot project or proof-of-concept project to ensure the solution the want is actually being achieved before scaling begins. Pilot projects allow us to make the inevitable tweaks that make the final solution all the better. Before any transformation process begins, you should spend plenty of quality time thinking about what you want to achieve. Innovation projects often go awry before they even begin because not enough “what if” thinking has been performed ahead of time. Cecere believes the supply chain is an excellent place to do some serious out of the box thinking. “I believe that supply chains build economies and save the world,” she writes. “I also believe supply chains need a revolution. It is clear to me an evolution is not sufficient. In my opinion we need a jump-start of sorts.”[6] She continues:

“I strongly believe leaders must build their supply chains with new building blocks. While traditional supply chain processes evolved from functional excellence definitions for source, make and deliver from the inside-out, to make the digital pivot and become more market-driven, companies need to define new supply chain processes outside-in. This outside-in orientation needs a definition to make it actionable. Let’s start with the basics. The design needs to be from the customer’s customer to the supplier’s supplier. While the traditional supply chain process was from the enterprise out to trading partners, in the outside-in supply chain the signals are from the buy- and sell-side markets back to the enterprise. This requires bidirectional communication between trading partners in the value chain. With each link there also needs to be a system of record for agreements and collaborative workflow to drive feasible outcomes. The gaps in supply chain visibility … are problematic for most companies. We have automated the enterprise, but not the value network.”

That brings us back to where we began this article — recognizing we are dealing with networks rather than chains. Since I’m the President and CEO of a cognitive computing firm, it should come as no surprise that I believe cognitive computing will help bring about the revolution Cecere insists the supply chain arena needs. I’m not alone in that assessment. Sundeep Sanghavi (@SundeepSanghavi) writes, “The solution to these woes begins with a mindset shift: You should no longer view data as a one-time investment. Instead, see it as something that can be operationalized into a scalable and repeatable long-term process. With most out-of-the-box big data solutions, companies use descriptive, predictive, or prescriptive insights to generate a one-time report on the data at hand. While this can help with troubleshooting, launching promotions, or making recommendations for individual products, these data solutions are not reusable or continuous, making this a short-term and shortsighted investment. Cognitive data products, on the other hand, utilize algorithms to automatically infuse data into your business workflows in a repeatable and scalable fashion.”[7] Accenture analysts agree with his conclusion. They assert cognitive computing will provide the “ultimate long-term solution” for many business challenges.[8] The future is going to be much different and I, for one, look forward to the changes that are coming.

Footnotes
[1] Donna Fritz, “Putting the Supply Chain First,” EBN, 9 April 2015.
[2] Lora Cecere, “Sage advice? Only for turkeys.” eft, 1 February 2013.
[3] Terry Volpel, “Are supply ‘chains’ still relevant?Purchasing B2B, 1 March 2016.
[4] Jason Busch, “5 Mega Trends Reshaping the Supply Chain,” Spend Matters, 14 March 2016.
[5] Bob Violino, “Most Firms Doomed to Repeat Innovation, Transformation Mistakes,” Information Management, 29 March 2016.
[6] Lora Cecere, “Building Outside-In Processes,” Supply Chain Shaman, 8 April 2016.
[7] Sundeep Sanghavi, “Why Every Modern Company Should Build a Cognitive Data Product,” Business 2 Community (B2C), 3 March 2016.
[8] “From Digitally Disrupted to Digital Disrupter,” Accenture, 2014.