The Real-time Supply Chain is Demanding New Management Strategies
November 18, 2013
“We are entering into a new era where systems are enabled by live, real-time data such as GPS, sensors, mobile, social media, and a connected web of streaming data,” writes Bill McBeath. “Enterprise system designers and operational decision makers are beginning to understand the potential of this continuous intelligence, and think about how to use it in operational decision-making.” [“Continuous Real-Time Situational Awareness for Time-Critical Operational Decision Making,” ChainLink Research, 29 October 2013] Beth Goodbaum reports that Kim Doyle, a senior manager at Plante Moran, one of the nation’s largest consulting firms, apparently agrees with McBeath that a new era demands new management strategies. Doyle told participants at the Women in Manufacturing Summit, “Supply chain professionals must adopt a new approach to management to tackle the complex challenges posed by the expanding globalization of manufacturing.” [“Emerging Management Strategies for the New Supply Chain,” Industry Market Trends, 29 October 2013]
The suggestion that new supply chain management strategies are needed has been gaining support for a while. Last year Trevor Miles wrote, “The practice of supply chain management has aged, there is a more rounded approach to the education and training of people entering the practice. Lora Cecere’s view is that we are entering the 3rd generation.” [“Real Option Analysis is relevant to Supply Chains too,” The 21st Century Supply Chain, 13 July 2012] Miles reports that Cecere’s definitions of the three supply chain definitions leaves him feeling a bit long in the tooth since they mark him as a “2nd generation” supply chain professional who “had a far too narrow [of an] education” to be part of the 3rd generation. In her article, Cecere reminds us, “The term supply chain management is new. It was first used widely by the audience in the period of 1992-1995.” Cecere places herself in the first generation of supply chain professionals and writes, “My generation is currently passing the baton to the second generation.” The third generation of supply chain managers is now in college receiving a broader education than generations past.
Cecere regrets that so many first generation supply chain professionals are retired, retiring, or passing away. She believes that second and third generation supply chain professionals would be wise to “spend time with these folks to learn the evolution of the concepts.” She continues:
“Understand what it was like before technology made the concept of Supply Chain Management possible. These were the days when writing meant a pad of paper and a pencil, when a presentation focused on the right transparencies and bulbs for the overhead projectors, the creation of a report involved lots of white-out and typewriters, and the final report was sent by inter-office mail. Calculations were done on adding machines and mainframes.”
Concerning the second generation of supply chain professionals, Cecere writes:
“The second generation of supply chain professional (ages 35-50) is where we are currently seeing the greatest talent issues. This is the generation that implemented ERP, ecommerce, and Advanced Planning Systems (APS). They were often the boots on the ground for the global supply chain. Many of them were pioneers: relocating their families and learning the nuances of global supply chain management the hard way. In short, there are too few of these trained individuals to fill the gaps of the retirees. The good news is that if you learn fast, you can help fill-in the gap.”
Miles, who considers himself mostly self-taught, applauds the fact that the next generation of supply chain professionals is receiving a broader education. He hopes that among the subjects being taught (and understood) are “scenario analysis, or what-if analysis.” He believes that kind of analysis “is a key capability” for anyone entering the supply chain management field. Using scenario analysis, he writes, helps decision makers determine the “likely outcome of a set of choices or decisions. Human judgment can be applied to evaluating the likelihood of achieving the outcome, in other words the risks associated with an outcome. But without the ability to evaluate different options quickly across multiple metrics – both financial and operational – it is difficult for a team to arrive at a conclusion of the best way forward that balances opportunity with risk.” McBeath would probably add that these decisions must now be made more quickly than in the past — some of them in real-time. He writes:
“Time-critical decisions in transportation, risk management, security, disaster response, manufacturing, and other operational domains require continuous real-time situational awareness and intelligence. Most enterprise systems do not provide this today.”
To make his point, he included the following graphic that shows a few of the kinds of decisions that must be made and the time frames associated with them.
McBeath goes on to discuss a number of system requirements necessary to provide real-time situational awareness and his discussion is well worth reading. For this post, I want to return to the subject of supply chain management and the kinds of strategies necessary to adapt to the environment being described by McBeath. Goodbaum’s article about Kim Doyle’s remarks provides a good overview. She first reports that Doyle sees the world changing in many of the same ways as McBeath. She writes:
“Manufacturers are outsourcing and expanding their markets and as a result logistics have become more complex. ‘Think about the activities that people have moved outside of their four walls,’ Doyle said. ‘It could be engineering, distribution or production. It adds complexity when you add new partners involved in your supply chain.’ An increase in demand and overall economic volatility may also require sudden changes in supply chains. And as economic uncertainty continues to play a role in consumer purchases, ‘customers are becoming more price sensitive and less loyal in some cases,’ Doyle said. With consumer demand and higher expectations on the rise, manufacturers need to top their competition, whether that means customization, quicker turnaround times or improved service. Innovation and marketing strategies pose additional challenges for manufacturers. ‘Introducing new products has a lot of complexities for the supply chain,” Doyle said. “You need to get the right product at the right quality, at the right cost.’ Cost reductions are also fundamental for price sensitive customers, she noted.”
Goodbaum reported that Doyle outlined “four steps that professionals should take to conquer the new challenges in supply chain management.” The first step involves supply chain visibility:
“Improve Supply Chain Visibility. In an ideal world, supply chain visibility would entail providing key data to suppliers, customers, and such other relevant parties as logistics providers. The data would [contain] information on product orders, shipments and inventory. Manufacturers are not excelling in the area of supply chain visibility, according to a 2012 Economist Intelligence Unit Survey of global manufacturers. Only 9 percent of the respondents said they could assess the impact of unplanned disruptions within hours. More than half said it would take more than a week to assess damage. Lost time could be devastating to business, as reflected by various supply chains that were crippled by Hurricane Sandy a year ago. ‘Not everybody is going to be [able to respond] in the matter-of-hours category, but to wait two or three hours, or to have no visibility whatsoever, think about it [if you] were in that situation, and your competitors could respond,’ Doyle stressed. ‘Your disadvantage would be pretty extreme.'”
Clearly, Doyle and McBeath agree on the importance of supply chain visibility and the speed at which information must be obtained in today’s fast-paced environment. The second step that Doyle asserts companies must take deals with supply chain flexibility.
“Become a More Agile and Flexible Supply Chain. While most organizations might recognize flexibility as a priority, many know that they need to work on a better strategy. Organizations with an agile supply chain have the ability to quickly adjust their plans, tactics and operations within the supply chain to adapt to a changing environment. Changes that impact the flow of the supply chain could be considered an opportunity, such as increased consumer demand, or a disruption, such as a production failure or a delivery setback. Doyle stressed that supply chains need to focus on a few key areas, including anticipation and awareness, which give companies the ability to detect changes. Speed is also essential. ‘It’s not enough to have the information, analyze it, and make a decision,’ she said. ‘You need to actually be able to implement on it, and that’s the key differentiator. ‘If you need to quickly adjust your production to meet increased customer demand, but if your production capacity and your supplier’s production capacity are fixed, you have no ability to flex to that increased customer demand,’ she said.”
Again, Doyle and McBeath are in agreement. Doyle also appears to agree with Miles that scenario planning is important. A company that hasn’t conducted scenario planning doesn’t have a chance of successfully implementing a strategy that allows them to adjust operations quickly as circumstances change. Her third step deals with risk management.
“Focus on Risk Management. ‘Nobody is really immune to supply chain risks,’ Doyle emphasized. Supply chain risks can originate internally, such as supplier shortage or delivery problems, or externally in the form of government policy changes or environmental disasters. Doyle advises supply chain professionals to identify all sources of risk. ‘Pull in as many cross functional groups as you can to go after this exercise,’ she said. Manufacturers working with a sole supplier should try to identify all the risks that could occur with them and be proactive by establishing a formal risk monitoring process and developing a plan to respond to problems, she said. Establish ownership of risk management across different groups, Doyle advised. ‘You don’t want this to become a pet project that one person owns, and you don’t want to put it up on a shelf and pull it out later,’ she said. ‘It really needs to become part of the overall supply chain management processes.'”
For anyone who has followed this blog, you know that I’m a big supporter of cross functional teams. I agree with Doyle that nowhere is this more important than when dealing with risk management. To fully understand potential risks, as many perspectives as possible need to be assessed. Doyle’s final step brings us back to the topic discussed by Miles and Cecere: supply chain talent.
“Get the Right Supply Chain Talent. Just as the industry environment has changed, so has the skill sets required to manage the supply chain. ‘You need people who are able to think and look across the end-to-end supply chain, and understand the implications that their decisions will have on other functions,’ Doyle said. ‘Being globally oriented, obviously, having those deep analytical and strong technical skills are important. And because of that strong ability to collaborate and coordinate with other groups internally and externally, they need to have strong communication, and coordination skills.’ More than ever, Doyle said, the incoming and current talent — who can benefit from job shadowing to see all sides of the supply chain processes — need to have the ability to adapt and respond to changes. ‘There’s talk about potentially mandating some type of supply chain certification some day, similar to the CPA, because organizations are truly looking at skill sets as such a competitive advantage for us,’ she said.”
Clearly Doyle believes that 3rd generation supply chain professionals need to be educated much more broadly than past supply chain professionals. On that point, she is in full agreement with Miles and Cecere. Because supply chain professionals must understand so much of the business landscape, it will come as no surprise in the future when more supply chain professionals take over as CEOs of the world’s most prominent companies. That trend will probably start with 3rd generation supply chain professionals and it will only increase when the 4th generation comes along.