Supply Chains Need to Transform: Into What?

Stephen DeAngelis

June 13, 2018

I read a lot of articles about the need for supply chain transformation. Most of the articles discuss the importance of leveraging digital technologies like the Internet of Things (IoT); the cloud; 3D printing; robotics, blockchain, and cognitive computing. What they don’t often discuss is the end game. Dan Gilmore, editor-in-chief of Supply Chain Digest, asserts supply chain transformation is only beginning to catch the attention of many CEOs. Why? Gilmore writes, “While there [is] some recognition of the role of supply chain in growth, it [is] very hard to measure. What is much easier to measure is cost — so that’s what drives the metrics and incentives.”[1] When the end game is cost reduction, there is little incentive to pursue other transformation strategies. Gilmore cites a passage from a book entitled The Supply Chain Revolution written by Suman Sarkar, CEO of Three S Consulting. The cited passage reads, “Most CEOs continue to ignore supply chain management and sourcing. One result, not surprisingly, is that the state of the art in these two fields has not changed much in twenty years.” A lot of technology has been developed over the past couple of decades. Twenty years ago the technologies being introduced were the Digital Versatile Disc (DVD), the mobile internet, the first 42-inch plasma screen television, megapixel digital cameras, and the Toyota Prius. Digital Age technologies can help supply chain professionals broaden their end game transformation strategies beyond cost reduction.

What is the end game?

Ben Sillitoe (@BSillitoe), Editor of Retail Connections, insists the end game is leveraging the power of data throughout an organization. He writes, “The common currency that all departments can collaborate around is data — data about stock and data about the customer.”[2] To achieve that goal, he notes “There are six key characteristics of a successfully transformed retail supply chain.” Those characteristics are:

1. Full visibility the length of the supply chain
2. Full internal and external collaboration for retailer and supplier
3. Digitized and automated processes
4. Single view of customer, stock and order
5. Full product traceability
6. Supply chain processes driven by real-time consumer demand, not forecasts.

Sillitoe concludes, “A supply chain transformation strategy built around these six characteristics provides all parties with the blueprint for collaboration, both in planning and execution.” Lora Cecere (@lcecere), CEO of Supply Chain Insights, would probably agree with those characteristics because they stress connectivity, communication, and collaboration rather than integration. She notes, “The connected supply chain is very, very different from the integrated supply chain.”[3] She agrees with Sillitoe that supply chains should be driven by demand. In the best companies, she explains, “The focus is outside-in, from the customer back, and demand-orchestrated across the silos to guide procurement decisions. In these organizations, demand is not managed as a functional process. Instead, it is a river that flows through and connects and aligns the silos.” She offers six characteristics that define a connected supply chain. They are:

1. Outside-In Strategies. “The use of channel data to translate market shifts without latency.”
2. Synchronized (versus Integrated) Processes. “The harmonization and synchronization of data across functional silos.”
3. Horizontal (versus Vertical) Process Excellence. “A focus on business process alignment across functions, through horizontal processes like Revenue Management, Sales and Operations Planning (S&OP), Inventory Management, New Product Launch, and Supplier Development.”
4. Data at the Speed of Business. “Not all processes move at the same speed. In the connected supply chain, data can move at the speed of business. In the integrated supply chain, data moves through batch processing.”
5. Data-Driven Insights. The end game should include building “business processes based on data-driven insights” and using “analytics to manage business decisions.” Cecere continues, “In the integrated supply chain, the core of the data were the solutions for vertical process excellence (CRM, SRM, APS, WMS, TMS, ERP, etc.). In the connected supply chain, there is an analytical layer designed to enable the streaming and pooling of data, along with the use of cloud-based solutions to overlay and interact across systems.”
6. Sensing before Response. “The traditional supply chain operates in rote with very staid processes. It does not sense. The connected supply chain senses and then responds.”

Let’s face it. Transformation is a never ending process and a true end game may never be reached. Karl Siebrecht, Co-founder and CEO of FLEXE, explains, “Industry disruptions aren’t slowing down, technology continues to evolve, and buying behaviors and expectations are changing — all of which affects the supply chain.”[4] The connected supply chain, defined by the flow of data, may be as close to an end game as we may come. John Heller, Chief Operating Officer at S’well, asserts, “The best supply chain managers are also data analysts at heart. All the answers that you need are in your data somewhere.”[5]

Summary

Cecere argues in favor of a connected supply chain instead of an integrated supply chain because the former is agile and the latter is not. She adds, “The digital supply chain is the transformation of the flows of the supply chain based on digitized data streams. Digitization is very different from the digital transformation. The difference is the intent. Most strategy documents that I am currently reviewing are looking to digitize data to make integration more effective. When I see these decks, I throw up my hands. A mistake is putting tight integration on steroids. So, if you are working on a digital supply chain transformation strategy, I think now is the time to step back and rethink the goal.” Gilmore writes, “With the game-changing dynamics in most business sectors right now, companies must either revolutionize (another word for transform) their supply chains or face losing market share and position or an even worse fate.” He again cites a line from Sarkar’s book, “The contrast could not be more clear between companies that have turned sourcing and supply chain into competitive weapons and those that have not.” I agree with Cecere that digitization and digital transformation are very different things. To gain a competitive advantage, companies need to adopt a digital transformation strategy that provides them greater visibility and agility.

Footnotes
[1] Dan Gilmore, “Time for a Supply Chain Revolution?Supply Chain Digest, 10 August 2017.
[2] Ben Sillitoe, “Supply chain transformation cannot be delayed just because it’s hard to achieve,” Opentext Blogs, 27 March 2018.
[3] Lora Cecere, “Why Our Goal Should Not Be an Integrated Supply Chain,” Supply Chain Shaman, 20 April 2018.
[4] Morgan Hass, “The Future of Supply Chain,” FLEXE Blog, 27 March 2018.
[5] Ibid.