Transforming Supply Chains

Stephen DeAngelis

June 12, 2012

The world is changing and supply chains must change with it. At least, that is the view of many supply chain pundits. For example, supply chain analyst Lora Cecere recently identified five ways that she believes the supply chain sector is going to have to change to keep pace with an ever-changing business landscape. [“Etc.,” Supply Chain Shaman, 11 May 2012] In fact, she doesn’t believe that the word “change” really captures how dynamic things are going to be. She writes:

1) Moving forward will be a Revolution not an Evolution. One by one, companies will realize that yesterday’s technology architectures were built on shipment and order data; and that the supply chain applications, as we know them, need to change. They are limited only to the use of transactional data. As a result, the new forms of data that allow companies to sense, listen, and learn have no logical connection to these traditional systems. These new data forms will drive new processes making many of the applications for ERP and APS obsolete. It will be a revolution not an evolution. The question is who will step up to make it happen?”

I don’t believe that Cecere is implying that companies are hesitant to step up (lots of companies are working feverishly to figure out how best to tap the value of Big Data); I believe she is really wondering which of the many companies involved is going to come up with “the next big thing.” She believes that moving fast is imperative because the whole world seems to speeding up. She continues:

2) Clock speed is Changing. Mobility makes real-time Possible. It is time to get the Supply Chain ready to move at a different speed. Supply chain applications were built on near real-time data. The use of mobility allows processes to be real time. This is a step change. As a result, we do not have best practices. Instead, we need to challenge all that we have learned. We need to adjust and challenge the past and accept that we now have evolving practices that need to be shaped, defined and tested.”

Catherine White agrees with Cecere and believes that manufacturers may have the most difficult time adjusting. She writes, “The accelerated pace of business [is] pressuring manufacturers to be more agile and increase the clock speed of their supply chains.” [“2012 Supply Chain Survey Results,” IDC Community Insights, 9 May 2012] One thing that most business analysts agree on is that when change is required only good leadership can make it happen. Cecere believes that leadership has to be provided from within organizations. She writes:

3) Leadership will have to come from within the Organization not from Consultants. Sandwiched between digital marketing and digital manufacturing a new form of supply chain management will bloom. It will drive the redefinition of processes outside-in and provide horizontal connectors from the customers’ customer to the suppliers’ supplier. In this journey, companies will find that the investments in Customer Relationship Management (CRM) and Supplier Relationship Management (SRM) are obsolete, but that the investments in horizontal processes for revenue management (to improve demand shaping), Sales and Operations Planning (S&OP) and supplier development will increase in importance. Due to the gap in supply chain understanding by consultants, organizations will need to ‘man-up’ to make this a reality. (Sadly, there are still too few women in these roles.)”

Bill Seliger, of R.R. Donnelly Logistics Services, agrees with Cecere that supply chain executives need to hone their change management skills. [“Lessons in Change Management,” by The SupplyChainBrain Editorial Staff, 17 May 2012] He told the SCB staff, “The ability to lead people through change is a critical component of any supply chain improvement project.” If Cecere is correct in her assessment that what lies ahead is a revolution, then revolutionary leadership is going to be required. The SCB article continues:

“These skills are not easily acquired, however, and Seliger says companies need to provide their employees with more effective training and with opportunities to work in different functional areas. ‘Improving skills and making sure you are on the top of your game is an ongoing and never-ending process, but it is essential to effective supply chain management, he says. Seliger also encourages companies to expose their employees to new technology tools, such as open-source tools in the data visualization and geographic information fields. ‘Companies can use open source tools without making a tremendous investment to do mapping and network optimization,’ Seliger says. ‘These are great skills for a novice supply chain manager to acquire.'”

To learn more about why mapping skills are important for supply chain managers to obtain, read my post entitled Risk Management: Mapping Supply Chain Risks. Seliger laments the fact that “when there is pressure on cost, training is one of the first things to get cut. This has a negative impact across the organization because it impacts the ability to effectively deliver projects and improvements.” Returning to Cecere’s predictions about how the supply chain is going to change, she next discusses collaboration.

4) Collaboration will take on a new Meaning. While we have talked about customer collaboration, in reality, what has happened in the first three decades is the pushing of costs backwards in the supply chain to companies that cannot afford them. It has largely been a story of ‘lipstick on a pig.’ It is time to own-up and look ourselves in the mirror. As companies work on corporate social responsibility, there will be a new incentive to tackle the waste in the supply chain that lies between trading partners. In addition, the tightening of the commodity markets and the rising prices and constraints in the supply of materials will redefine supply. In this journey, the term relationship will take on a new meaning and collaboration will mean more than data sharing and lowering costs.”

Although stakeholders in the supply chain understand that collaboration is important, actually doing it in a meaningful way has proven difficult. One reason is that supply chains continue to get more complex. As White notes, “Complex and extended global supply networks [are] … often characterized by significantly longer product lead times” — a fact that makes collaboration all the more important. Cecere’s final prediction is that regulations are going to increase.

5) Compliance will Increase. Forcing Value-based Outcomes. I hate legislation; however, I feel that the transformation of the supply chain to value-based outcomes will only come through legislation. And, it is coming. I believe that it will happen in all industries, but at different rates. Food and Beverage will see it in the next two years. I only know of one company that is ready. Healthcare is four-to-five years off, and I feel that no one is ready. Value-based supply chain legislation will change the incentive structure between buyer and seller and redefine the outcome. In healthcare, companies will have to standardize. No two hospitals are alike. No two rebates are alike. The focus today is on efficient sickness not effective wellness. While food and beverage will be a painful evolution, healthcare redefinition will be a revolution.”

Compliance requirements won’t just emanate from legislatures. Retailers are likely to issue stricter compliance manuals for vendors and manufacturers are likely to issue stricter codes of conduct on their suppliers. All of these compliance requirements will make supply chains even more complex and technologies that can help companies sort it out all the more important. White agrees that there is going to be “growing regulation, particularly in the area of traceability.” As a result, she writes, there is going to be a reinvigoration of “efforts to improve visibility, supply chain responsiveness, and product quality.” The only question left to ask is: Are you ready for the revolution?