Delivering the right product, at the right place, at the right time. This age-old challenge for supply chain managers is more difficult to solve than ever before, partly because traditional supply chain best practices were developed under assumptions of stability that no longer hold true. So what is the new supply chain management definition?
In light of rising turbulence and risk, businesses have no choice but to evolve their supply chain management practice into 'Supply Chain 2.0' - rapid, scalable, intelligent and connected strategic engines that drive sustainable growth and value - to solve current challenges and prepare for others in future.
This post explores: What exactly do organisations need from their evolved supply chain models? What will the supply chain of the future look like? And what does this mean for supply chain professionals?
What is Supply Chain 2.0?
In a June 2016 paper from Accenture, Supply Chain For a New Age, authors Mohammed Hajibashi and Ashoo Bhatti define the characteristics of Supply Chain 2.0 as:
- Rapid: For example, demand sensing, automated KPI reporting, real-time planning and execution, dynamic inventory replenishment, and robotics.
- Scalable: For example, reconfigurable supply networks, lightweight SDA, cloud-hosted optimization tools, and a digital products supply model.
- Intelligent: For example, predictive maintenance, predictive forecasting, integrated optimization, supply and price analytics, “what-if” scenario analysis, and cognitive computing.
- Connected: For example, connected infrastructure, ecosystem collaboration, transportation control tower, social product development, track and trace, and external data exploitation.
Hajibashi and Bhatti claim the supply chain of the future is enabled by six core pillars:
- Rapid and responsive consumer-driven supply chains
- An integrated operating model that breaks silos and provides connectivity
- Performance management that’s aligned across the organization
- Clear and differentiated supply chain segmentation strategies
- End-to-end supply chain collaboration within the organization and across external trading and service partners
- Digital capabilities and a technology platform able to support all of this
With advanced supply networks that can unite physical flows with talent, information, and finance, organisations have the potential to develop new synergies, get closer to their customers, rapidly reach new markets, and build new and more relevant products at speed. As such, they require a new supply chain management definition.
Redefining Supply Chain Management
Traditionally, supply chain management was responsible for establishing control of the end-to-end process in order to create a seamless flow of goods. The function was highly specialised and siloed, with little involvement in commercial strategies.
At this time, variability was seen as detrimental to performance as it creates costs in the form of stock-outs, poor capacity utilisation, and costly buffers. But to address increased market turbulence, businesses need to challenge conventional thinking and build structural flexibility into the design of supply chains and review the procedures that are used to make different supply chain decisions.
As the supply chain function evolves, so too do the requirements of supply chain professionals, particularly those in senior positions. Supply chain leaders now need to be multi-disciplinary, collaborative, visionary and pragmatic. Given the high responsibility, forward-thinking executives and policymakers argue that supply chain management deserves a seat at the boardroom table. But before this happens, they require a new definition of supply chain management.
Growing Recognition of Supply Chain
Two decades ago supply chain management consisted of a handful of disciplines that were not systematically linked, and little changed until the turn of the millennium. But as companies expanded internationally, it became more and more expensive and ineffective to separately handle the different aspects of supply chain management.
The challenge of cost reduction forced supply chain managers to pursue strategic sourcing and build collaborative relationships with suppliers. The supply chain became increasingly key to the success of an individual organisation, and yet the function still remained distant from senior management.
Is that all about to change?
A 2015 study by Professor Douglas Boateng, which drew on a sample of international and public sector organisations with a combined revenue or spend of well over a trillion USD, examined the boardroom perspectives on the strategic importance of supply chain management. C-suite executives that took part in the study included CEOs, CFOs, COOs, directors, and officers from manufacturing and production, mining and resources, goods and beverage, government, agriculture, logistics and public sector organisations.
With relation to complex supply chains, such as government, where the quality of the service delivered is paramount for value creation, 34 percent of global respondents viewed the supply chain management function as critical to the success of quality service delivery, increasing by 19 percent over a four-year period.
The study also found that 68 percent of global executives felt that supply chain management and procurement have a direct impact on industrialisation and national economic development.
These statistics highlight the growing recognition that supply chain management is not simply about ‘cost of ownership,’ but rather for its overall impact on business and society. This
It is evident that supply chain has emerged as a prominent topic on the strategic agendas of both public and private organisations and we require a new supply chain management definition. Shifting director level perceptions of the role of the chief supply chain management officer are steadily leading to the transformation of the C-Suite and business-wide view of the supply chain function.
Supply chain strategies are at a crossroads, and not addressing today’s challenges will only result in lost revenue. Business leaders need to recognise the urgency in transforming their supply chains and the increasingly important role that supply chain management plays in the overall organisational environment. The most effective way to do this is by establishing a new definition of supply chain management that reflects emerging supply chain trends and acknowledges the increasing value of this function. The first organisations to evolve their supply chains - and the internal perception of the function - will be the first to outpace their competition.
- Boateng, D., (2015) Gauging director level perceptivities on aspects of supply chain management - A global longitudinal study