Evaluating Supply Chain Transformation

Stephen DeAngelis

February 06, 2020

The first of the year is a traditional time for retrospection and contemplation. The rush of the holiday season is over and people take time to recharge themselves for the coming year’s activity. The new year is also a good time for supply chain professionals to evaluate how their value chains need to transform in the months and years ahead to meet changing business conditions, such as the recent coronavirus outbreak. I believe most professionals will discover their supply chains need to become more agile. Laurent Chevreux, Michael Hu, and Suketu Gandhi, partners at A.T. Kearney, explain, “Even today’s most digitally advanced supply chains still try to predict what will happen, then optimize performance against plan. The problem is, the world is not predictable.”[1] They add, “Chaos is normal. Timetables and priorities shift. A supplier fails to deliver. You get hit with costs no one saw coming. Some surprises are bigger than others, but when you’re the one who still has to get the job done, no surprise feels small. Further, demands on supply chains are increasing exponentially as companies vie to meet consumer desire for more personalized products and services, delivered exactly when and where they specify, very quickly, at the same low cost.” If you’re not supply is not agile, it will fail to make the grade. Chevreux and his colleagues assert, “It is time to pursue a bold leap in supply chain performance.”

The transformation imperative

According to Chevreux and his colleagues, “Many companies are currently making major investments in digitizing and automating their supply chains to make them better informed, more frictionless, more cost-efficient, and hence more capable. Those efforts are necessary, but not sufficient. If you simply digitize your supply chain, you may achieve great improvements in speed, efficiency, and reliability, but your supply chain is still not built to pivot.” They raise an important point: Digitizing your supply chain and digitally transforming your supply chain are not the same thing. Digitization is the gateway to digital transformation. During a 2017 conference, Tricia Wang (@triciawang), a self-described Tech Ethnographer & Sociologist, told participants, “A lot of companies treat digital as if they are ‘doing digital’ — this is ‘digitization’ at its worst — as if it’s some checklist of things to do. It’s very transactional, and people are so busy doing digital they don’t even know WHY they are doing it in the first place! Whereas [some companies] embrace ‘being digital’ — this is ‘digital transformation’ at its best — it’s a total paradigm shift in the culture and operations — it’s not just about buying the latest digital tool, but about creating a new system, new cadence, new mindset.”[2] That new system probably has at its digital core a cognitive platform, like the Enterra Cognitive Core™, which powers the Enterra Supply Chain Intelligence System™. Cognitive platforms can handle mundane data tasks as well provide decision-makers with actionable insights mined from today’s data rich supply chain environment. Such systems can also facilitate connectivity to the larger supply chain ecosystem and make supply chains more agile.

Soldiers in combat are advised to “keep their heads on a swivel.” In other words, don’t concentrate so much on one area you get surprised by something you don’t see coming. Chevreux and his colleagues write, “In order to achieve a sustainable advantage, companies must digitize and automate supply chains to better execute against plan. They must also build in the ability to sense and pivot to perform against the unplannable.” In other words, just like military personnel, they need good situational awareness. They need visibility into things happening around them. Steve Banker (@steve_scm), Vice President of Supply Chain Services at Arc Advisory Group, suggests a supply chain control tower can help. He explains, “A supply chain control tower … represent[s] a high level of digital maturity. Control tower is a term that implies real-time visibility. But visibility to what? Shipments? The integrated business planning process? Finished goods inventory? The status of work on the factory floor? Supply chain risks? Ideally, it is all of these.”[3] Of course, having good situational awareness is meaningless if you can’t do something with what you know. Roy Anderson (@procureguyvp), Chief Procurement Officer and Digital Transformation Officer at Tradeshift, insists, “Sixty years of relative stability in global trade encouraged businesses to build efficient but highly rigid supply chains that minimize cost but make it difficult to adapt quickly.”[4]

Becoming more agile

Anderson makes five recommendations to make your supply chain more agile. They are:

1. Know your dependencies. According to Anderson, “Many supply chains extend far beyond first-tier suppliers. … It’s important to map out these n-tier dependencies to have visibility into the entire supply chain. That way, if disruption strikes a distant part of your network, you’ll be able to spot it earlier and take steps to reduce the impact.”

2. Understand your bill of materials. “Without a detailed, accurate bill of materials,” Anderson notes, “you can’t see where all these dependencies lie. That means knowing all the raw materials and components for the products you sell and where they are sourced from. These should be ranked in order of importance to the business, so you know where to prioritize action.”

3. Consider alternative suppliers. Whether the challenge is rising tariffs or natural disasters, having suppliers in areas unaffected by similar challenges is a good idea.

4. Know your network. Anderson points out there are new technology solutions that “make it easier to identify and connect with new suppliers when they’re needed. They also give you more visibility into your supply chain to help you spot potential problems (e.g., if your supplier or your supplier’s supplier is experiencing delivery delays).”

5. Experiment with AI and machine learning. Anderson writes, “The level of visibility you’ll get from all of the above measures will generate a tremendous amount of information that may overwhelm current systems and procurement teams. Machine learning tools provide a way to analyze all these data points and suggest alternative courses of action. … The key here is to have accurate data and a robust understanding of the suppliers and products that impact your company’s ability to meet its contractual commitments.”

As Wang pointed out, however, digital transformation and supply chain agility is “not just about buying the latest digital tool, but about creating a new system, new cadence, new mindset.” Chevreux and his colleagues conclude, “Making your supply chain sense and pivot is a significant endeavor. Organizations should focus first on the supply chain elements that are most susceptible to disruption and carry the most negative business impact. … Where you do take action, be bold. Don’t wait until you have the perfect data or feel absolutely certain something will work before you attempt it. The imperative to be more agile is too pressing to be overly cautious.”

Footnotes
[1] Laurent Chevreux, Michael Hu, and Suketu Gandhi, “Why Supply Chains Must Pivot,” MIT Sloan Management Review, 19 July 2018.
[2] Trevor Miles, “Let’s be clear: Digitization is not the same as Digital Transformation,” Kinaxis Blog, 8 December 2017.
[3] Steve Banker, “20 Things to Know about Supply Chain Digital Transformations,” Forbes, 18 September 2019.
[4] Roy Anderson, “The agile supply chain: 5 ways to disaster-proof your business from trade wars and Brexit,” Venture Beat, 8 September 2019.