Nearly two decades ago, the business world was in the midst of the dot.com bubble. E-commerce was just getting it legs and new business models were being developed. People were so intrigued with the rapid changes in the business landscape they virtually forget the importance of traditional business fundamentals. As a result, the dot.com bubble burst and a new term was born — irrational exuberance. Today, there is a lot of talk about supply chain transformation and the emerging technologies driving that transformation. We need to ensure we are not caught up in a new round of irrational exuberance as the transformation evolves. We need to remember there are some traditional supply chain principles that still apply — even in the Digital Age.
Seven timeless supply chain principles
Principle 1. Supply and demand governs the marketplace. Rich Weissman reminds us that the first timeless principle is: Supply and demand still rule supply chains.[1] “Far from what some consider the dismal science,” he writes, “economics drives most decisions in the supply chain. Supply chain managers need to be fully aware of the economic conditions that drive their business, their suppliers and their customers. In this age of Big Data, one cannot ignore all of the information and analysis available today to assist in making suitable supply chain decisions. It is up to supply chain professionals to identify, analyze and track the key economic trends and indicators that not only impact their business but also offer a window into their supplier’s strategies. … The heart of economics familiar to supply chain managers occurs in the marketplace where buyers and sellers meet and bargain over goods and services. That transaction rests comfortably within the supply and demand curve.”
Principle 2. The laws of physics still matter. Because we live in the Digital Age, people need to be reminded that most of the supply chain still relies on the movement of real objects through real space and time. It still takes a long time for cargo ships to transit the vast expanses of ocean. Failures in cold chain logistics can still cause spoilage. Inventories still need to be stored. You get the picture — the physical world still matters. Kevin O’Marah (@komarah), Chief Content Officer at SCMWorld, observes, “Few businesspeople really grasp the possibilities and limits of matter. Marketing, sales, finance and IT tend to assume away things like melting points, cubic volumes, mold-flow rates and so on. Supply chain professionals must own the problem of making physical things happen, in volume, and at costs low enough to make profit.”[2]
Principle 3. Supply chain IS business. Lora Cecere (@lcecere), founder of Supply Chain Insights, bluntly states, “The supply chain IS Business, not a department within a business.”[3] According to Weissman, “Supply chain managers … have a responsibility to be internal business resources. Their direct access to a wide range of practical market intelligence through direct involvement in global supplier networks, coupled with access to original and curated economic data, creates the perfect opportunity to be internal company advisers to marketing, finance, operations and senior management.” Finally, Abe Eshkenazi (@aeshkenazi), CEO of APICS, adds, “High-performance supply chains offer a vision of how they drive and support corporate strategy.”[4]
Principle 4. Supply chains are networks not chains. Supply chains have always involved networks; but, early descriptions of supply chains stressed their linearity and links. As a result, the supply “chain” was born. It’s a bit ironic that in the era of networks we are talking about digital supply chains. O’Marah laments the persistence of the name. “For years we’ve debated terminology with minimal success,” he writes. “Alternatives tend to be too broad (value chain), too clever (demand chain), or insufficiently descriptive (operations). … Everyone wants something snazzier.” Value network is a much better name, but it is too broad and vague to use as a nickname for traditional supply chain functions. I think we’ll be using “supply chain” for long time; even though, O’Marah is correct that the supply chain plays the ultimate cross-functional role.
Principle 5. Disruptions are always costly. Since so many causes of disruption are beyond the control of a business, disruptions are impossible to eliminate. As a result, supply chain managers try their best to mitigate negative effects of disruptions. Payson Johnston (@PaysonJ), CEO & Co-Founder of Crowdz, explains, “The ‘Achilles’ heel’ of the supply-chain is that it can quickly be disrupted through natural disasters, acts of war, environmental issues, and industry-wide shortages. Prepare for the worst but proactively limit your risk through second sourcing, auditing environmental and social compliances, and creating inventory plans that ensure continuity. Also, watch out for the second and third tiers of your supply chain, which can quickly bring a supply-chain to a screeching halt.”[5]
Principle 6. Supply chains must change with the times. Johnston recommends risk managers keep their heads on a swivel. He writes, “Supply-chain management cannot be done in isolation. Industries shift, trends change, media hype comes and goes, and customers go elsewhere. Watch the trends and modify or change or even disrupt your supply-chains strategy in new directions, so you don’t get left behind.” O’Marah adds, “The paradox of supply chain is that we constantly try to remove variability even as we embrace change. If supply chain becomes boring it means you’ve found something — a process, task, job, or just about anything else — that can be automated, and it’s time to move on. The learning should never stop.”
Principle 7. The supply chain owns sustainability. Although sustainability has not been a traditional supply chain principle, going forward it will be. O’Marah explains, “Everyone likes to talk about social and environmental responsibility, and CSR reporting gets pretty glossy, but almost all real impact rolls straight up into supply chain. We buy the raw materials, turn on the big machines, burn the fuel, employ the labor and dispatch the trucks. It is innate in our culture to seek efficiency, so we’ve been thinking sustainably since long before it became fashionable.” Johnston adds, “In order to make real progress in sustainability (defined as balancing the needs of Plant, People, and Profit) a company, [whether] big or small, must embed it into its everyday operations and DNA. Otherwise, it becomes only a marketing promotion and is not part of the core of the business.”
Summary
Tomorrow’s supply chain must be digital and smart. Jason Rosing (@JasonRosing), founding partner of Veridian, explains, “Intelligent supply chain management can reduce costs, improve profitability, and enable competitive advantage for your organization. … The technologies powering intelligent supply chain systems demand connected systems, integral to the omnichannel supply chain.”[6] Nevertheless, as supply chains adapt to the Digital Age, those implementing technological changes need to keep their heads. Irrational exuberance is a pothole that negatively impact today’s road to transformation as much as was during the dot.com era. Remembering timeless principles of supply chain management will help.
Footnotes
[1] Rich Weissman, “Supply and demand still rule supply chains,” Supply Chain Dive, 5 February 2018.
[2] Kevin O’Marah, “Ten Timeless Truths of Supply Chain,” Forbes, 10 August 2017.
[3] Lora Cecere, “Sage advice? Only for turkeys.” eft, 1 February 2013.
[4] Staff, “What are the characteristics of a great supply chain?” Inbound Logistics, 15 June 2016.
[5] Payson Johnston, “12 Essentials of Supply-Chain Management,” Crowdz Buzz, 6 January 2017.
[6] Jason Rosing, “What Is Intelligent Supply Chain Management?” Cerasis, 15 March 2018.
