New Year’s Resolution: Transform Your Supply Chain

We are approaching the time of year when people pause to reflect on the past and resolve to do better in the future. Supply chain professionals would do well to follow that practice in their professional lives. Lora Cecere (@lcecere), founder and CEO of Supply Chain Insights, believes too many supply chains are “stuck in neutral.”[1] I like the imagery. Even if you want to step on the accelerator to promote corporate growth, being stuck in neutral means you are going nowhere fast. Cecere writes:

resolutions-02“At Supply Chain Insights, we define supply chain excellence as the ability to improve customer service levels, operating margins, and inventory levels while also growing revenue. Based on our analysis of balance sheet patterns for more than 2,000 public companies in 35 industries from 2006 to 2015, we believe that nine out of 10 companies are stuck when it comes to supply chain improvement.”

Cecere believes supply chains must transform in order to get out of neutral. She asserts nearly all companies stuck in neutral can’t get into gear because they continue to follow historic best practices. “These functional processes drive improvement within a function,” she writes, “but have failed to produce balance sheet improvements and increase value across the entire supply chain.” One of problems she asserts is mindset. The very term “supply chain” is outdated and Cecere prefers the term “value network.” She explains, “While a supply chain focuses on the improvement of supply chain management within the firm, a value network strategy defines how the firm drives value through interactions with trading partners in a global economy.”

Creating a Smarter Supply Chain

I doubt Cecere would get much pushback when she insists today’s corporations are nodes of larger value networks. One of the value of networks is the data they generate. In the information age, data is a resource as valuable as oil and companies need to leverage it in order to improve their processes. Because so much data is being generated (so-called Big Data), Dave Blanchard (@supplychaindave) insists companies need to embrace artificial intelligence (AI) to help cope with the deluge.[2] As President and CEO of a cognitive computing firm, it should come as no surprise that I agree with him. Blanchard discusses how just one AI capability — predictive analytics — can add tremendous value-added to a company. He writes:

“Predictive analytics is one of the disruptive technologies that will have a dramatic impact on supply chains and the people who run them, according to a recent survey of 900 U.S. supply chain executives conducted by Deloitte Consulting and MHI, a trade association for the material handling and logistics industry. Almost half (44%) of the respondents say that predictive analytics provide a competitive supply chain advantage, especially in today’s era of the ‘always-on’ supply chains.”

Cecere describes another area she believes cognitive computing systems will provide considerable benefit — supply chain planning. She goes so far as recommending companies divert funds from ERP upgrades “into cognitive learning and artificial intelligence pilots.” She explains, “I think these solutions will fill in the current gaps in master data management and will be the basis of the next generation of supply chain planning. The future is autonomous planning. Today there are three primary providers: Enterra Solutions, IBM, and RuleX, but look for more competitors in this space in the near future.”[3] Cognitive computing can add value across an enterprise because it can collect, integrate, and analyze both structured and unstructured data. It can provide actionable insights to decision makers, autonomously make routine decisions, automate and optimize processes.

Paul Myerson, a Professor of Practice in Supply Chain Management at Lehigh University, notes, “Technology is pervasive in today’s supply chains in every possible area, ranging from processing and tracking transactions to planning, scheduling and managing. It enables a truly integrated, visible and efficient supply chain that benefits from collaboration. … It is clear that technology can help the supply chain to bring companies and people closer together in today’s global economy.”[4] Meyerson may be accurate in stating technology is pervasive, but, If Cecere is correct, companies still need to learn how to leverage that technology to create smarter and more collaborative value networks.

Resolve to Transform the Supply Chain and Save the Business

Kevin O’Marah (@komarah), Chief Content Officer at SCM World, writes, “It has become apparent that in the decade since scholars such as Cranfield’s Martin Christopher first began talking about the concept of supply chains, rather than companies, competing against one another, the idea has become a reality. Supply chains are now undeniably at the heart of businesses, and the skills required to manage them are increasingly the same as those required to run the company.”[5] Cecere has said much the same thing. “The supply chain IS Business,” she insists, “not a department within a business.”[6] Since the supply chain is so central to business, transforming it will transform the company.

Most analysts agree that industrial age organizations need to transform themselves into digital enterprises if they are going to survive in the future. Beginning that transformation with the supply chain makes a lot of sense. O’Marah notes that technology is playing a large role in this transformation. “The technology that has developed over the past three decades has played an essential role in making possible the global view of the corporate chain,” he writes. “That top level view simply wouldn’t be possible without all the software applications that provide visibility, apply incredibly complex algorithms to achieve optimisation and allow us to process vast volumes of data in order to understand trends and to spot patterns.”

Shawn Tay, a supply chain and operations analytics manager for HP, agrees that technology, specifically advanced analytics, must play a central business role in the years ahead. “The use of advanced analytics,” he writes, “is one of the hottest topics in the business press these days and is certainly top of mind among supply chain managers.”[7] He stresses advanced analytics because, “Supply chain innovation comes from finding drivers of supply chain results that are not widely known in the industry, and then executing process change around those drivers.” Those gems of insight are hidden in large data sets and are only freed through the use of advanced analytics.

Whether you begin a company’s digital transformation with the supply chain or not, transformation is essential. Matt Gunn explains, “The idea of digital transformation is less and less a thing of science fiction among old school supply chain types, and more acknowledged as a reality of the present day. Still many companies haven’t yet figured out how to connect the physical supply chain to the digital one.”[8] When it comes to the digitalization of the supply chain, he adds, “It is leadership that will drive companies forward and elevate the status of the supply chain in an increasingly competitive and fast-moving world.”

Footnotes
[1] Lora Cecere, “Stuck in neutral: Few supply chain organizations are driving value across their networks,” CSCMP’s Supply Chain Quarterly, 29 June 2016.
[2] Dave Blanchard, “How to Build a Smarter Supply Chain,” Material Handling & Logistics, 29 June 2016.
[3] Lora Cecere, “Five Trends That Excite Me!Supply Chain Shaman, 28 November 2016.
[4] Paul Myerson, “Supply Chain Technology Brings the World Closer Together,” IndustryWeek, 2 August 2016.
[5] Kevin O’Marah, “How the supply chain has become central to business,” Supply Chain Digital, 19 September 2016.
[6] Lora Cecere, “Sage advice? Only for turkeys.” eft, 1 February 2013.
[7] Shawn Tay, “Supply Chain & Big Data ÷ Analytics = Innovation,” Supply Chain 24/7, 19 October 2016.
[8] Matt Gunn, “It’s Time for Supply Chains to Adapt or Die,” Supply Chain 24/7, 6 November 2016.

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