Supply Chain Management: Is It Still the Next Big Thing?
March 05, 2013
“Back in 2011, Victoria Taylor wrote an article entitled, “Supply Chain Management: The Next Big Thing?” [Bloomberg BusinessWeek, 12 September 2011] For that article, she interviewed William Verdini, an associate professor and chairman of the Supply Chain Management Department at Arizona State University’s Carey School of Business. He told her, that “many of the current supply chain managers are transplants from other parts of their companies, with no formal schooling in the discipline.” Taylor noted, “A wave of interest in supply chain management at colleges all over the country will change that.” Certainly more and more companies are coming to believe what Verdini told Taylor, namely, “Businesses don’t compete; supply chains compete.” As a result of that realization, Verdini claims, “Supply chain officers are getting in on the strategic decisions that are being made.”
Professor Robert Handfield, Director of the Supply Chain Resource Cooperative (SCRC), an industry-university partnership based in the Poole College of Management at North Carolina State University, believes that supply chain professionals are moving closer to the center of power in business because executives are beginning to realize that supply chain activities have significant strategic impacts on almost all phases of operations. [“What is Supply Chain Management?” The SCRC Articles Library, 11 January 2011] He writes:
“The concept of Supply Chain Management is based on two core ideas. The first is that practically every product that reaches an end user represents the cumulative effort of multiple organizations. These organizations are referred to collectively as the supply chain. The second idea is that while supply chains have existed for a long time, most organizations have only paid attention to what was happening within their ‘four walls.’ Few businesses understood, much less managed, the entire chain of activities that ultimately delivered products to the final customer. The result was disjointed and often ineffective supply chains. Supply chain management, then, is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible. Supply chain activities cover everything from product development, sourcing, production, and logistics, as well as the information systems needed to coordinate these activities.”
It should be no surprise that professionals who have such a broad reach are finally being recognized for the impact they can have on an organization. Staff members at Venture Outsource provide a clue as to why formal education in supply chain management is now being fostered and appreciated. [“Supply chain management“] They write:
“Supply chain management in the tech sector can be very challenging, indeed, especially with allocated and long lead-time parts; product life cycles that are becoming shorter and shorter, the cyclical nature of many electronics end-markets, plus rapid changes in innovation driven by competitive market forces and the sudden emotional swings and whims of consumers. [Below] is a graph from an earlier study conducted by Gartner. Its main highlight is the shortcoming in ‘desired’ supply chain problem solving skills, versus actual supply chain problem solving skill capabilities.”
Surely one shouldn’t expect transplanted personnel “from other parts of their companies, with no formal schooling in the discipline” and not enough real-world experience to be great problem solvers. Back in 2011, Adam Hill noted that the supply chain was “often viewed in a silo.” He obviously believed that was a mistake. To make his point, he interviewed Nada R. Sanders, author of “Supply chain management: a value network approach.” [“Supply chain management: everybody’s business?” by Adam Hill, Ernst & Young, 11 November 2011] The first question he asked Sanders was, “Why do you think supply chain management is often considered only at the level of logistics?” She replied:
“It starts with leadership. It’s frustrating, but corporate leaders who move up the ranks come from a certain mindset, such as finance, marketing or operations.
This means that they are only able to look at supply chain management from one perspective. It’s important that business leaders surround themselves with people who understand the other sides, so that they can synthesize these views into a broader perspective. Why is it a mistake to view the supply chain as separate?
Because it can lead to profitability, lower costs and greater agility. It’s also about survival. Any company that does not pay attention to its supply chain management may not survive, and it certainly won’t prosper.”
The next question Hill asked was, “What can companies do to integrate supply chain management into their operations?” Sanders responded:
“Your strategy doesn’t need to be complicated. First, examine three things: your physical network (what does it look like?), your relationships (what are you outsourcing?) and your IT resources. Then, in the supply chain itself, four strategies need to come together: distribution, procurement/purchasing, operations and logistics.”
Your strategy may not need to be complicated, but executing it can be and normally is. That is why formal training is becoming so essential. Sanders then discussed a few companies that have done well integrating supply chain management. The final question that Hill asked was, “What are the key lessons when it comes to tackling supply chain issues?” Sanders answered:
“Broad-based thinking is important, but is often lacking. What works for a large company in one domain might not work for a small company in another. It will depend on what the competition is, where you are in your life cycle and whether you are selling a commodity or luxury goods. There is often a lack of connection between distribution (typically in the marketing domain), purchasing (the buying function) and operations. Having all three of those communicating in real time gives you a chance of success.”
Another issue that has garnered increasing amounts of attention over the past couple of years is supply chain disruptions. Steve Culp, Accenture’s lead in its global Risk Management practice, notes, “In recent years, supply chains have become longer and more complex, while the severity and frequency of supply chain disruptions seems to be increasing.” [“Supply Chain Disruption a Major Threat to Business,” Forbes, 15 February 2013] He continues:
“Natural disasters and extreme weather conditions are not the only threats to supply chains. Systemic vulnerabilities, such as oil dependence and information fragmentation, also pose serious risks, as do political unrest, cyber crime and the rising cost of insurance and trade finance. Our research says that 80 percent of companies worldwide see better protection of supply chains as a priority.”
Such observations make it clear why supply chains can’t operate in isolation as a siloed activity. As Culp puts it, “It is increasingly clear that supply chains established during more stable times need to be reshaped for operation in an era of increased volatility.” He notes that at Accenture they recommend using “elements of what [they] call ‘dynamic operations’ [to] help accomplish this.” He provides a few examples:
- Supply chain operators should be able to synthesize external and internal data and rapidly take action to minimize the impact of a disruption.
- Supply chain structures should be adaptable and agile so that they can quickly adjust and respond to market and economic conditions. Transparent organizational structures, including a clearly defined corporate structure and coordinated departments with clear responsibilities, can help reduce confusion and speed action if and when a disruptive event occurs.
- Supply chain managers also need to strike a balance between efficiency and effectiveness. They need a diversity of activities, suppliers and markets rather than an overspecialization in one sector, or a total dependence on a key supplier.
- To maintain effectiveness, supply chain managers can arrange to share strategic stocks, or to enter into joint supply agreements. They can also pre-arrange ways to access critical stocks such as emergency fuel and medical supplies.
Clearly, much of what it takes to manage dynamic operations is going to require real-world experience and not just book learning. It takes more than good management — it takes great management — to achieve a great supply chain. Culp concludes:
“Despite fears that injecting resilience into the supply chain will create cost and reduce possible rewards, most experts surveyed for our research on supply chain resilience believe that efficiency and resilience can coexist without major negative impact. Managers, however, still focus on reducing cost and increasing reward, missing out on leveraging risk management as a competitive advantage. We believe, that steps taken to improve supply chain resilience – such as building a culture of risk management across suppliers; improved alert and warning systems; identification and elimination of supply chain bottlenecks; and improved information sharing between government and business – are both good business practices and important preparedness measures. Companies that undertake such measures as part of a comprehensive blueprint for supply chain resilience will be in a much better position, not only to bounce back from potential disruption, but to gain legitimate competitive advantage from such events.”
The bottom line is that supply chain professionals are still not receiving all of the credit that is their due. I predict that as more of these professionals (i.e., those with dedicated supply chain majors or advanced degrees) enter the field, their skills and knowledge will become more appreciated and they will inevitably move into the circles of power and decision-making. Right now Data Scientists seem to be the talk of the town (see my post entitled The Search for Data Scientists); but, I believe that two of the surest areas where graduates will be able to find employment at a good wage will be in supply chain management and Big Data analytics.