The Death of Supply Chain Management
Instead of limiting their focus to their immediate suppliers, distributors, and customers, companies are examining the whole supply chain.
It links raw material, components, and manufactured products, and also shows how they are moved toward the final consumers.
Companies are looking at their suppliers’ suppliers upstream, and at their distributors’ customers downstream.
Even the term supply chain can be criticized for taking a make-and-sell view of the business.
It suggests that raw materials, productive inputs and factory capacity should be the starting point for market planning.
A better term would be the demand chain since it suggests a “sense-end-respond” view of the market.
The planning starts with considering the customer segment with certain needs, to which the company responds by organizing resources.
Experts are even saying that a supply chain or demand chain view of a business is still too limited because it takes a linear or vertical view of purchase–production-consumption activities.
With the arrival of the internet, companies are forming more numerous and complex relationships with other firms.
For example, Ford not only manages numerous supply chains but also sponsors or transacts on many B2B websites and exchanges as needs arise.
Ford also formed a buying alliance with General Motors GM and DaimlerChrysler to obtain lover prices by aggregating orders for common requirements from auto parts suppliers.
Companies recently are engaged in building and managing a continuously evolving value network.
What are the trends in channel dynamics today?
The supply chain is one of the most important company’s entities.
Main goals of the supply chain, at any level, are connecting processes within products/services, and to absorb the differences between a stable supply and consumers’ needs.
This allows suppliers, manufacturers, distributors, and customers to interconnect. Synchronization along the supply chain should optimize efficiency throughout the chain.
It’s a system that connects technology, processes, customers, suppliers, workers, machines, culture, metrics, risk factors, networks and facilities. Interaction of these elements dictates the quality of end results yielded as final services and products.
The concept of supply management is facing strong challenges from technologies in progress, cultural and leadership shifts and also shifts in client requirements.
Supply chain leaders must follow ecological, economic, political, industrial and socio-demographic trends.
They should be able to determine if trends are negative, positive or stagnant and show the ability to respond to all of them.
Along with these skills, leaders must deploy prioritized and effective strategies in response to the trends mentioned above, and efficient risk management strategies when required.
But it’s confirmed that the supply chain meets significant threats such as needless transportation of people, information or materials, way too small inventory causing a lower sale or too large inventory waiting for materials and equipment. And these are not the only ones.
Such problems can cause delays since the delivery may get late when waiting for information, materials, instructions, inspection and similar.
Delays create huge cost drivers and waste of resources.
This shortlist shows what companies shouldn’t do if they want to pursue and reach their goals:
- Producing more than necessary
- Producing services and goods which don’t really meet the client’s specification
- Touching products too many times
- Unauthorized usage of human resources…
Many people noticed that, in modern supply chain management, the inability of a business to respond fast to customer taste shifts became very common.
Allegedly, a solution lies in re-engineering supply chains. That would lead to increased flexibility.
Also, simplified product design, platforms, and product families are needed.
“PUSH” AND “PULL” MODELS
There are two supply chain models – “push” and “pull” type, which is the opposites when it comes to demand and supply relationship.
Commonly used “push” type is less effective and encourages wasting materials more than necessary. This model is based on making stocks and the production isn’t based on actual demand.
On the contrary, the “pull” type represents production based on actual demand. It means that products are made to order so there is less waste in the process.
This is considered to be a model of the future.
As technology increases rapidly, the supply chain management is slowly converting from the traditional first type to the modern “pull” type.
It is based on the demand side like CRP (continuous replenishment program) and JIT (just in time).
As a consequence, stocks are decreasing and products can get delivered faster.
SUPPLY CHAIN MANAGEMENT (SCM)
Supply chain management involves the coordination of all the supply activities of an organization, from its suppliers through the production of goods and services to delivery to customers.
Supply chain management is a systematic approach to managing the input flow of materials, information and services from raw material suppliers through manufacturing and warehouses to the end customer.
The purpose of supply chain management is to achieve integrated planning through supply chain activities.
SCM involves planning and managing the flow of goods and services, information and money through the supply chain, starting from the supply of raw materials to the final products for clients.
This is a continuous process that connects the procurement, production and distribution activities of products from suppliers to customers.
It enables regular supply, creating only the necessary stocks and eliminating the unnecessary ones.
The production begins only when order is received.
Efficient supply chain management is minimizing waste, cost and time in the production process.
The supply chain meets the just-in-time standard where retail sales automatically signal replenishment orders to manufacturers.
One way to further improve on this process is to analyze the data from supply chain partners to see where the next improvements can be made.
To increase the value of the supply chain process, companies should be able to identify potential problems, optimize prices dynamically and improve the allocation of the inventory.
Identifying potential problems: If a manufacturer has fewer products than then customer ordered, he can complain of bad service.
Manufacturers could then, through data analyzing, anticipate the shortage right on time.
Dynamic optimization of price: Some products are seasonal, which means they can’t be used after the season ends or get sold at huge discounts.
To meet demand, the prices of these products have to be slightly adjusted.
Many companies are using this technique to improve sales.
Improving the allocation of the inventory:
To schedule work based on forecasts or allocate resources, managers use helpful analytical software tools.
Since manufacturers are able to confirm a product/service delivery time when the order is placed, incorrectly-filled orders are reduced.
SUPPLY CHAIN MANAGEMENT EVOLUTION
Traditional supply chain management consists of activities such as planning, sourcing, making, delivering, returning and enabling.
To establish an efficient and effective supply chain, supply chain management plans and manages the resources needed to meet buyer demand.
The next step involves communication with suppliers, from finding those who can provide materials for the product to authorizing supplier payments.
All other steps are related to organizing, accepting material, packaging, delivering products, coordinating customer orders, returning defective or unwanted products, etc.
Earlier supply chains were mainly focused on the problem of availability of physical products, their movement, and cost. The situation today is quite different.
Regarding the period from the beginning of the 21st century, the supply chain’s main point of view is the management of data, services, and products turned into solutions.
According to IBM experts, modern supply chain management is not only about where and when. “Supply chain management affects product and service quality, delivery, costs, the customer experience and ultimately, profitability.” – they said.
When we take a look at the 2017 supply chain database, 50 times more data has been accessed compared to the previous 5 years period, of which less than a quarter is being analyzed.
Huge amounts of data generated by the chain process were refined by data scientists and analysts.
Future supply chain leaders and the ERP (Enterprise Resource Planning) systems they manage will probably focus on optimizing the usefulness of this data — analyzing it in real-time with the least latency.
DEATH OF SUPPLY CHAIN MANAGEMENT
For over a decade changes in supply chains are discussed, and many writers shared their views and opinions on the topic.
There are different thoughts on how it would change in the future and how would these innovations affect companies’ flow.
We found that some of them were highly against the automation, while others remained optimistic by supporting the advancement of technology.
Andrew Salzman shared his view in his article from 2009. He explained why the traditional supply chain cannot survive in the new age. In his opinion, how companies deliver goods and services depends a lot on changes in global business.
This is why companies have to keep track of the latest technologies and upgrades in supply chain management.
SCM is facing a huge problem, which occurs when physical products reach purchasers very slow comparing to the demand pace.
Customers are now able to make an order in just a few seconds, but the arrival time depends only on the vehicles and can be longer than expected.
The other problem is that this model is adequate for tangible products rather than intangible ones, considering the speed of supply and demand.
Such tangibility requires fresh information and feedback on a current state, mainly between globally connected manufacturers, sellers, and distributors.
Different product and service qualities, organizations, time zones and many more make collaboration even harder.
These days, companies must overcome problems in multi-enterprise demand-supply networks, coordinate supply chain management, and enterprise resource planning systems.
It is absolutely necessary to understand how inappropriate is the current system when it comes to global connection and global outsourcing.
Connecting data from multiple systems requires automation of some supply chain operations.
To keep up the pace and support this dynamic demand-supply network needed today, companies should consider these requirements: B2B integration, business intelligence, exception and event management, and operations management, Salzman explains.
Supply chain managers, planners, and decision-makers need real-time data from the market considering supply.
But according to Jan Fransoo’s article, they spend too much time collecting information, which is sometimes useless since they’re found too late.
“Typically they spend less than 25% (and a much lower number in manufacturing supply chains) on the decisional role: deciding on the plan, schedule, or replenishment.”
The time spent on making decisions is minor compared to the other key features of the planning activities. This is caused by obsolete and limited technologies, which will soon be behind us.
New digital technologies can overcome these problems by replacing the current supply chain management with a self-regulating utility that requires very little human intervention and optimally manages workflows.
Not only does it provide customers with cost-optimized convenience, but also the companies are able to improve workers’ safety by remotely controlling the whole supply chain.
With a digital foundation, companies can easily access and analyze high-quality real-time data which fuels artificial intelligence, robotics and other technologies that will take over supply chain management.
Some companies are already exploring these possibilities by applying such technologies on repetitive processes (for example purchasing, invoicing, parts of customer service).
Leading retail companies already have professionals working in their control centers, where they can monitor the stock 24/7.
Visual notifications are received when a problem occurs. Comparing to traditional supply chain management, data is fresh, accurate and easily accessible. The focus is on the customer.
However, retail companies aren’t the only ones. Industrial companies also implement this concept.
Complex manufacturing systems require customized tools for planning and prediction of the activities in a risky situation.
These tools should help to overcome problems such as unexpected equipment breakdowns or missing parts of the system.
Several international companies are upgrading their operations by adding central information and administration systems, along with centralized logistics operations for multiple global customers and countries.
New technologies are also followed by Blockchains’ global platform, used to fasten up payments (virtual money).
Another effective way for fast supply chain operations is e-commerce. What is e-commerce?
People will do less transactional or repetitive tasks and focus more on information managing, analyzing and designing.
Companies seek people who can analyze data and use digital tools or algorithms. Therefore, supply chain analysts are becoming the most wanted.
It is now clear that the death of supply chain management is near.
Companies and managers are working hard to upgrade their processes and skills in order to stay on top.
Obviously, robotics and the newest technologies are replacing humans in some parts of supply chain management since they’re doing a job faster and better.
However, there are those who don’t agree. People are still worried about how will these changes affect supply chain employees and is there some work for them to do.
While some people accept changes that come with the new age, there are still those who highly disapprove and decide to stick with the traditional system.
Some fear to lose their jobs since computers started replacing human workers in many areas.
But does this crucial fight between people and computers has to end up with one side winning?
In the future, human managing will probably be needed in some parts of supply chain management.
Some of our skills can never be replaced by artificial intelligence and modern technology since there are plenty of things computers can’t do. These skills need to be upgraded.
Companies still need people to monitor tasks and respond to issues.
The demand for Supply chain high skilled professionals will only rise more and more. They will have more opportunities than ever before.
Machines can’t negotiate supplier agreements and sign contracts, along with making decisions.
They could only assist in order to shorten and speed up the process of data managing.
Machines might get better at the tactics, but the strategy will perhaps remain human.
The author of the Argentus article agrees by saying that supply chain management won’t be dead. On the contrary, it will still exist but in a different form.
Automation is present in many aspects of our lives, even the purchasing activities where it took over many jobs like those in warehouses and distribution centres, but not all. As mentioned above, humans can’t be totally replaced.
We need to ask ourselves what is the cost of such technology and can we afford it.
Are they bigger than the current labor costs?
The answer is simple.
Not only that the automation is lowering labor costs, but also allows working with huge databases and predicting risks.
“This kind of visibility opens up huge opportunities, not only by lowering risk but also by letting companies become more strategic,” he stated.
In this new era, supply chain executives need more than ever great communication skills, judgment, and creativity. They seek greater value to share among the partners.
That is the future of supply chain management, claims Chris Tyas, Senior vice president supply chain of Nestlé.
In his opinion, the death of supply chain management suggests that technology like artificial intelligence will decrease the importance of supply chain management.
Technology allows some simple tasks to be automated to reduce costs, but it can’t innovate.
Therefore, computers won’t take us forward. Interpersonal skills are needed since technology doesn’t work all on its own. Humans are necessary for this area.
Tyas had also shown his optimistic approach to this modern time problem by saying that there are still big opportunities for supply chain managers.
“People are needed to optimize the end-to-end supply chain and to optimize logistics as a whole. In general, we still make appalling use of vehicles, both inbound and outbound. Very few inbound vehicles are optimized for weight and cube and it becomes even worse when we go forward towards the consumer. How many different vans from different retailers deliver to different, or sometimes even the same customers in any one street? If we are going to keep logistics operating efficiently this has to change.” – he wrote.
We can notice that supply chain managers focus mostly on cost rather than the overall profit. People often specialize in only one aspect to optimize what they can control.
But this is not what we need. They should focus externally – reach across the whole value chain if they want to optimize it from end to end.
Tyas believes that this can only be done in a partnership where huge opportunities lie because we replace the chain with a network.
This is the way the supply chain is expected to change very soon.
SUPPLY CHAIN NETWORK
Why is a supply chain network so important for logistics and business managers?
As previously mentioned, the supply chain network is an evolution of the traditional supply chain.
It is evitable that modern companies can and should develop a supply chain into a more complex structure that involves a higher level of connectivity between organizations, constituting a supply chain network.
Companies are becoming part of a larger network of organizations connected mostly by the supply chain.
Nowadays, worldwide supply chain networks consist of these key areas: production centers, external suppliers, production centers, distribution centers, demand, and transport.
This network includes different activities, people, entities, information, and resources.
To build a supply chain network, companies take care of physical locations, transport vehicles, storage warehouses, logistics provider, retail stores, container ships, cargo planes and more.
Strategically, a supply chain network can be designed to reduce the cost of a supply chain.
Around 80% of supply chain network costs are determined by the location of facilities, along with the flow of products between them.
To modify the basic supply chain, companies invest in tools and resources in order to develop an enhanced supply chain network design.
That will help in reducing costs among companies. The supply chain network, as well as a traditional supply chain, is not static but continually improving and adapting the model.
It must be able to deal with future uncertainties by doing risk analysis, using available information and researching of the future business environment.
In order for a supply chain network to gain effectiveness and profitability, all elements of the network should be coordinated. If one link breaks down, it can affect the rest of the chain and be costly to the company.
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