Has supply chain planning become stagnant over the past decade? It’s both an interesting and frightening thought given how many organizations have invested heavily in digital supply chain transformation over the past few years. For some, like leading supply chain thought leader Lora Cecere from Supply Chain Insights, the answer is a resounding yes. Last month Anne Robinson, Kinaxis Chief Strategy Officer, sat down with Lora to talk about the concept of outside-in planning, and why it could be the key to extracting the craft of supply chain planning from the box Lora believes it’s been trapped in for years. The conversation really resonated with me and helped me to reflect on my own experience as a supply chain leader.
Have improvements in planning technology made supply chains more agile?
Lora has been saying for some time that in her opinion, supply chain planning has remained static or even regressed over the past decade, and she does have a point. Despite improvements in planning technology, supply chains have become more complex with greater product ranges, more manufacturing nodes and more – everything. It takes us just as long to respond to events, like a global pandemic, today as it took us to respond to the financial crisis 15 years ago.
But why does it actually matter? Missing financial targets, upsetting customers may impact shareholder value, but most importantly wasting our natural resources, sending products to landfill because they have date expired or are simply unwanted and unsellable is a crime against the planet.
What steps can businesses take to continue improving supply chain maturity?
It’s easy to think that implementing a new planning system will fix the problems, however, a better approach is to design processes around end-to-end information flows. The process also needs to be measured using a balanced score card that is aligned with the metrics that drive the business. Research from Lora and Morgan Swink, James L. and Eunice West Chair in Supply Chain Management and Executive Director at the Center for Supply Chain Innovation at Texas Christian University (TCU), both suggest that companies should be looking at supply chain performance in terms of return on assets (ROA), revenue growth and profit margin. Traditional supply chain metrics like purchase price variance, overall equipment effectiveness (OEE) and manufacturing cost don’t help us to make the best supply chain and business decisions.
Data governance is also critical. In a recent conversation on LinkedIn, a head of digital solutions asked the question whether an organization can improve its digital maturity without having good quality data. The notion that perfect is the enemy of good applies here. However, the question shouldn’t be whether organizations can improve maturity without quality data, it’s how clean does the data need to be to be good enough? More and more digital tools can help clean data to the point that the data becomes good enough. So an even better question would be, is it possible to get more mature on digital without clean data, but with a good data strategy? With global organizations having an average of 12 different advanced planning systems, a unified data model is required to ensure seamless information flows. Another aspect to this is the way that we use data. Traditionally we use and focus on structured data from ERP systems, however, real value can be derived from using less structured data, for example from listening posts. As the analytics become more sophisticated, it can also help with some level of intelligent automation in the places where it matters.
One part of the conversation that really got me thinking was demand latency, the time between the end customer purchasing a product and the time it takes the manufacturer or supplier to sense that demand. Product proliferation can really impact demand latency. Product management may develop a new product, but have no idea that the demand latency may be four or five times longer than an existing product. I suspect that this may be why companies who cut their product range in response to the pandemic, often saw surprisingly successful results. However, in the current situation, where lead times are extending significantly, the demand latency is also extending, which will reduce many companies’ ability to respond with agility as supply and demand changes.
As supply chain professionals, we build rigid structures, underpinned by a number of assumptions. For example, we assume that politicians are rational, logistics and transportation is unconstrained and supply lead times are fixed, or at least have low variability. All of these assumptions have now been disproven: trade wars between the US and China, the Russian invasion of Ukraine, container shortages, lack of truck drivers, supply lead times doubling or tripling overnight. There is a rapid transition from cost optimizing the supply chain to designing a supply chain for resilience, however, to do this we need to consider the entire supply chain as a system, and not try to optimize functional silos.
Anne and Lora’s conversation is a call for action. We may have stood still for the past 10 years, but continuing to stand still is not an option. Watch the full conversation here to get a better sense on how you can keep your supply chain from stagnating.