Changes in Supply Chain Management: Happening Fast not always Appreciated
May 21, 2014
The 19th Century French journalist Jean-Baptiste Alphonse Karr, coined the adage, “The more things change, the more they stay the same.” Doug Braun, CEO of IBS, is not so sure that Karr’s proverb remains true. He writes, “The proverb … suggests that change does not affect reality on a deeper level but only cements the status quo. In our era, however, change is not only happening, the evolution of change continues to be fast.” He insists that change is occurring in the supply chain as fast as it is in other areas. [“Evolution of Change in the Supply Chain Swirling at Breathtaking Pace,” SupplyChainBrain, 20 January 2014] In spite of the fact that the supply chain is constantly changing, C-level executives often don’t appreciate how central supply chain operations are to their businesses. That may not be a surprise to some supply chain professionals; but, it might surprise them to learn that many supply chain managers feel the same way as those C-level executives. Results from a survey conducted late last year in nine European countries by Hitachi Consulting, “found that just over half (55 percent) of the respondents do not regard their business’s supply chain as a fundamental source of business value and competitive advantage and almost a third (29 percent) see it as purely an operational function.” Even more astounding was the fact that “the majority (80%) of supply chain managers do not see their supply chain as an enabler of business strategies within their organisation.” [“Supply chain not seen as business strategy enabler,” Fleet News, SupplyChainBrain, 16 December 2013] If supply chain managers don’t appreciate the strategic value of what they do, how can they expect C-level executives to see that value?
In fact, Cathy Johnson, vice president at Hitachi Consulting, believes senior executives have a greater appreciation for the value of the supply chain than the professionals that work in the field. “These figures are far from reassuring,” she told Fleet News. “For the most part, it seems that senior executives understand the strategic importance of the supply chain, yet the managers who deal with the supply chain on a day-to-day basis do not. A supply chain that doesn’t support the overarching business strategy, and which doesn’t deliver competitive edge – and which isn’t going to deliver a material change in performance over the next five years – is clearly not a desirable asset.” Although it may seem difficult to reconcile Braun’s assertion that the supply chain is changing rapidly and Johnson’s assertion that some (if not most) supply chains are not poised to “deliver a material change in performance,” the fact is that they agree that supply chain managers need to wake up. Braun admits that, if effective changes are going to be made in the supply chain, it will require “a paradigm shift in the way supply chains are managed and administered.” He explains:
“People don’t like change, so it’s important to position executives who will inspire the necessary change in an organization. Change management requires the right people on board, with clearly set goals. It’s difficult because of the brisk pace of change that faces industries and supply chains. Companies have to get people who have bought into a consumer-driven supply chain, and ones familiar with the electronics age we now live in. Priorities have to shift, and cultures need to change.”
Two big changes that Braun sees coming involve “the ascent of the consumer-driven supply chain” and “on-shoring to manage brisk changes.” Concerning the first topic — the consumer-driven supply chain — he writes:
“In business, it’s always been about the customer. However, a consumer-driven supply chain is now the norm. Companies have to be prepared to support this shift and the impact of the omnichannel shopper on the supply chain. Passive companies failing to adapt to this type of supply chain will increasingly be at a disadvantage. Costs will be too high. They will be stuck with too many or too few products, and the wrong mix of products. They won’t be able to service customers in a satisfactory manner either. … The market is moving briskly to address the scenario of how to satisfy a consumer-driven supply chain and how to personalize products on a ‘one-each’ level. Companies not only have to produce, manufacture, assemble and customize products in a cost-effective manner but deliver those products to consumers in a time frame sufficient for their needs.”
Concerning the second topic — on-shoring — he writes:
“While the move a decade ago was to push manufacturing off-shore to lower costs, the demands of a consumer-driven supply chain necessitate capabilities to deliver on personalization and timeliness. And that means on-shoring. It’s worth noting that the distinction between B2B and B2C supply chains is at best gray today and at worst completely obliterated. The concept of B2B is the same. A customer will order supplies, and she will order them in a quantity to get the discount — whether the supplier carries them for her and distributes the products one at a time as she needs them, or ships them to her for placement in a back room. … There is no sense in separating B2B from B2C companies because they purchase the same way. Even businesses that sell to other businesses may want their names emblazoned on those conduit boxes to personalize them as we see in B2C. The key thing to remember is that differentiation adds costs and time. What you’re trying to do is minimize the differences, and thereby, the costs and turnaround time. And people will pay for personalization, be it B2B or B2C.”
Jeffrey Karrenbauer, president of Insight Inc., told the SupplyChainBrain staff, “Supply chain management has made progress in the last few decades, as demonstrated by professionals reaching executive management positions, but it is still falling short of its potential.” [“What’s Working, and Not Working, in Supply Chain Management,” 21 January 2014] That’s a conclusion with which both Braun and Johnson could agree. “The supply chain is an integrative function, Karrenbauer stated, “and we still have too many companies practicing silo management. This results in a lot of dysfunctional behavior and a lot of money being left on the table.” Organizational silos have hampered effective performance for years. To learn more about that topic, read my posts entitled “The Curse of Silo Thinking,” “Breaking Down Silos,” “Silos in the Supply Chain,” and “Corporate Silos: Obstacles to Supply Chain Transformation.” Karrenbauer asserts that silos will continue to plague companies until they “change their compensation and evaluation structures. As long as silo management is rewarded, that is what we will get.” He also agrees with Braun that outsourcing may have outlived its usefulness. “Savings from outsourcing were always something of a mirage, but if they ever were there they’re not any more. Many studies now say that the lines representing the costs of producing in the U.S. and in China will cross in 2015.”
Supply chain professionals need to start believing what analysts like Lora Cecere and others have been saying for years, “Supply chain is business.” Cecere writes, “The supply chain IS Business, not a department within a business.” [“Sage advice? Only for turkeys.” eft, 1 February 2013] She continues:
“For the last twenty years, supply chain professionals have fought to get a seat at the table. Suddenly, the term supply chain is being used to describe a department within the enterprise — often composed of distribution and logistics — and the concepts of supply chain management as a better way to run businesses are largely forgotten. I strongly believe that the principles of great supply chain management are key to business. Progress can never be made when the term supply chain is narrowed to only the auspices of a limited set of responsibilities within a supply chain department.”
With a growing number of tools available for supply chain professionals that can be used to make an even greater impact on their organizations, it’s time that supply chain managers start believing in the importance of their work as a core strength of their companies. The last thing they should want is for things to remain the same.