Vibrant network ecosystems are turning supply chains into competitive weapons
Supply chains are undergoing a barrage of assaults. From tariffs and trade wars to globalization and reshoring, market shifts and domestic and international regulation, companies are challenged more than ever in managing their supply chains effectively.
Amidst this turmoil, most companies continue to struggle with network visibility across their ecosystem of suppliers, plants, warehouses, distribution centers, logistics providers, and customers and are actively looking for a change. KPMG notes in a recent report, that only 6% of companies said they had full visibility over their supply chains.
A major part of the reason for that is that over the years companies have accumulated a portfolio of systems to manage each aspect of the business – transportation management systems, warehouse management systems, ERP, and more. Plus, many have acquired companies and inherited their data and systems. An executive recently told me of his experience with a Fortune 100 healthcare firm, that has five different instances of SAP and dozens of connected applications to each one. Another equally large agriculture products firm was embroiled in unifying their supply chain execution and planning across more than 50 business unit—seach having made their own platform choices!
Companies valiantly attempt to connect and synchronize their supply chain data, but that itself is problematic. The typical EDI-dependent connections are high latency and susceptible to errors. Ironically, as data has become more central to business, its quality has not improved, and in many cases has deteriorated. Companies struggle to get a handle on this data and to manage the critical data that they need to share with partners.
With a future rife with uncertainty and change, executives must make strategic decisions where information is incomplete and often contradictory. As organizations continue to plan new sites, make sourcing and logistics decisions and establish key partnerships, they struggle deciding which emerging technologies to adopt (if any) amidst all this uncertainty.
These challenges also make it difficult for companies to become more customer-centric and to remain competitive. With legacy supply chain technologies, these burdens make it virtually impossible to be agile and responsive to the market and to customers, and to meet their expectations in a timely and cost-effective manner.
“You won’t solve a problem with the thinking that created it”
It’s not that companies are lacking the will to innovate and transform. The challenge is in successfully making that transformation. Many have tried, but most fail—nearly 75%, according to one report. It notes that: “Organizations are still experiencing issues meeting their digital ambitions. Eighty-six percent said factors including reliance on a legacy technology, complexity of implementing technologies, and lack of resources and skills had prevented them from pursuing a new digital service or other transformation project that their organization wanted.”
It's not surprising that legacy technology is a major inhibitor of innovation and transformation. Over the years, companies have implemented specialized systems to manage different functions and different sites. These siloed systems are deeply embedded at the heart of a company’s DNA and are reflected in its business processes.
This has served companies well until now. The internet and globalization changed everything. And that change is set to accelerate as new technologies such as IoT, AI, robotics, edge computing and more fuel the need to connect and communicate more data, and make decisions faster than ever. But implementing new technologies and solutions on the current siloed floorplan, is not a solution, and fails to address the fundamental problem.
The next-generation supply chain
There is little disagreement about what the next-generation supply chain looks like. Industry analysts, such as Gartner, Nucleus Research, IDC, and ChainLink Research, agree that the old paradigm has run its course, and the future is in multi-enterprise, or multi-party business networks.
In acknowledgement of this new model, Gartner recently published its first Magic Quadrant for Multienterprise Supply Chain Business Networks. And in the words of ChainLink analyst Ann Grackin, speaking on the future of the supply chain, “For this decade of the 21st century and beyond, the winning business model is the networked enterprise. The technology platforms that enable them is the connective tissue of these networks.” IDC sees the move from “enterprise centric to network centric, driving productivity gains.” And Nucleus Research’s "Real Value of Value Chain Networks," April 2017, report found that, “deploying a multi-enterprise network supply chain solution can reduce overall costs by 3 to 5 percent.”
So, what exactly constitutes a next-generation supply chain?
The next-generation supply chain is not a chain at all. It is fluid and dynamic network of equal partners, coalescing around the customer, and driven by real-time data. It is ecosystem that facilitates the forging of new relationships to innovate and deliver new products and services to the market rapidly; and then monitor and iterate as necessary to hone design, production, delivery and service for optimal customer experience.
It’s designed to handle complexity and scale. Complexity is a natural part of supply chains, and networks connect and coordinate it all so it works. Companies are dealing with a proliferation of choice for consumers. In fact, one beauty products company has seen their SKU count go from 50,000 to 75K to 100K by 2020—with a 30% annual turnover due to shifting consumer preferences. It’s about the customer and these new supply chains help all partners better meet customer expectations such as their preferred products, customizations, channels and delivery windows.
It’s a now environment. And it’s about real-time data being used to inform decisions and automated processes. Although analysts differ in their terminology and emphasis, the essential feature of these networks is that the provide a real-time, single version of the truth for all businesses on the network. After all, a lot happens within a day. Whether you’re an automotive parts supplier that needs to replenish a manufacturing plant every 4 hours, or a global retailer with an online presence and same day shipping, the next-gen supply chain needs to accommodate this need for speed.
Data and digitalization are at the heart of it all. Digital data and business processes not only help automate data collection and reduce errors, but also open the door to much more intelligent supply-demand matching and sense-respond capabilities. With real-time data on all channels of demand and all nodes of supply across the network, as well as available resources such as staff, equipment, and dock door availability, systems can now continuously deploy supply and orders for optimal efficiency and service to customers. This smooths the flow of supply and tightly tracking demand changes to optimize service while minimizing inefficiencies and waste.
This hyper-connected ecosystem is radically inclusive. It spans company functions and companies, it spans the field and factory floor, it spans all nodes and tiers and tracks in-transit shipments between them. It leverages data from external sources that might impact demand and the supply chain, such as GPS, weather, traffic (vehicular and foot), news and social network activity. It encompasses a complete and global view, yet collects and retains all the high-resolution detail down to the item level at all nodes in the network, including for sales or consumption, orders, inventory, and shipments.
So, if “siloed” is the defining characteristic of today’s generation of supply chains, “seamless” is the defining characteristic of the next. Some other key characteristics include:
- Network effects. There are many network effects, and the new generation of supply chains fully exploit them. In general, “the network effect” is the accruing of advantages to members as the number of participants increases. The network effects start immediately. This is because when a new member joins, many of its trading partners, suppliers, and logistics service providers are likely already on the network, meaning there’s no need to onboard them, integrate with their systems and train their users. Another key advantage is that the cost of the solution is spread across many organizations, so the total cost of the solution is lower than traditional systems which require a full implementation for each new customer.
- Real time and forward-looking. Supply chains today generally rely heavily on batch processing and thus run on stale data that is shuffled between systems, and they lean heavily on historical data for forecasting. The next-generation uses historical data as just one of many inputs. It modulates the historical data with point-of-sale data, real-time demand and predictive algorithms that incorporate other factors such as weather and traffic. This is a pervasive trait, not just for forecasting. When it monitors the supply chain, it projects conditions into the future to anticipate problems, such as out of stocks, and address the underlying cause to pre-emptively neutralize minor issues before they manifest into full-blown problems.
- Modular and adaptable. Where current systems tend to be monolithic and difficult to customize, the new generation is modular. This means functionality is encapsulated in modules that provide network services that are available through a subscription model. Modules are “network-aware,” taking into account relevant conditions across the network, and working seamlessly with other modules.
In particular, this means that planning and execution work together in near real time, rather than as separate functions. Planning can include trading partners, and is informed by real-time execution data, so that plans are incremental, practical and executable, reflecting current conditions and constraints of all parties, whether freight or production line capacity. Businesses can also adapt and extend modules to suit their business needs, or if necessary, build entirely new modules from scratch. One of the major benefits is that they can be used across the network, by other departments in an organization, or by other companies. This boosts productivity, lowers costs, and makes deploying new functionality on the network much simpler.
- Manual versus Autonomous. Supply chains are traditionally dominated by manual processes, from material handling, to information handling. There can be dozens of transactions even for simple processes like dock door scheduling, that involve numerous back-and-forth communications via email and phone, and manual data entry into multiple systems. This is labor-intensive and increases the risk of errors. The new model utilizes self-service features, artificial intelligence, and intelligent agents to automate many of these tasks. For instance, intelligent agents can monitor demand signals from point-of-sale systems, and autonomously adjust orders based on unexpected demand patterns.
Automation is the key to operating today’s supply chains in real time and at global scale – and AI is the secret sauce. As one supply chain executive from a large office supply company said, “Take the brain out of it. The brain makes mistakes!”
Getting from now to autonomous supply chain management
We are on the brink of a major shift, but the real question is how does one get there? On the one hand we have the labyrinth of many enterprise-centric, legacy systems in place. On the other, we have a dynamic ecosystem of networked enterprises, fluid and agile—looking to integrate with each other more closely to gain efficiencies, lower costs, and improve service levels to their ultimate end customers.
To make the transformation, companies should look for network-based platforms that are truly real-time and multi-party, that offer a single version of the truth for all parties on the network. While digital transformation may seem a daunting task, it can be done in an agile, phased approach, that prioritizes high value functionality and services upfront while minimizing the risk. This phased approach can even be self-funding—where the benefits of one project pay for the next.
A sound strategy should include functionality and tools for making the transition relatively quick and painless. For example, the network should connect and incorporate current systems where it makes sense, allowing their data to be leveraged on the network, and continue functioning as normal, with minimal disruption to business processes. Companies can then optionally and gradually switch on network services that replace legacy systems, for a seamless transition. Most importantly, a multi-party network solution should provide a robust multi-party master data management tool to help companies gather, model, map, cleanse and manage shared data.
With the ability to drive network-wide efficiencies, boost customer service levels, and rapidly exploit new opportunities via a multi-party business network, companies that recognize the new network imperative and grab the opportunity will be at an advantage. They’ll be the winners.