In 2012, three decades of supply chain management have passed. It is time to learn from history and look forward. I feel that organizations need to train for supply chain 2020.
As we head into the race, the headwinds are strong. Commodity volatility is the highest in one hundred years. Materials are scarce and the standards for social responsibility programs are rising. Product life cycles are shorter and customers have higher expectations. Global market opportunities are high, but require microsegmentation and customization. As a result, supply chain complexity is increasing. While many would throw in the towel, I think that it is time to train to run the race. I feel that now is the time to prepare to run the race of supply chain 2020.
Training. Do you have the Right Stuff?
When an athlete trains, they learn (albeit sometimes through trial and error) that they need to be strong and flexible with a good sense of balance. Throughout the collection of stories for my book Bricks Matter (to be published this fall), sports analogies abound. One supply chain leader likens managing his supply chain team to a marathon, another to a triathlon, while another ascribes it to a swim meet. One uses the analogy of a game of chess. One thing that we do know, is that it is not a game of horseshoes. Getting close to the goal is not good enough.
In the past thirty years, teams focused on building the “strength” of the supply chain. In interviews for the book, the supply chain pioneers often expressed the need for greater flexibility or agility and gaining better balance in today’s supply chain.
An effective supply chain is built for purpose. Today, the supply chain is less agile. As companies have implemented global systems, improved the cost structures, and implemented lean programs, they have improved strength, but not driven balance or flexibility into supply chain systems. Today, for many, it is brittle. And, there is no way to assess the risk.
In the supply chain, while balance happens through alignment in horizontal processes– Revenue Management, Sales and Operations Planning and Supplier Development — agility only happens through design. For most, this is a new concept. It has not been a design element of most corporate strategies. As a result, in the face of supply and demand volatility, the company is less resilient. In the research for my upcoming book three things are quickly becoming obvious.
Inconsistent definition. There is no consistent industry definition for agility. While companies frequently use the term, and quickly acknowledge the need, the term needs to be defined by each organization. It cannot be assumed. Without it, the organization will thrash-about finding it difficult to design the supply chain and drive alignment on agility. In Figure 1, we share how 117 supply chain executives recently defined agility. For a market-driven supply chain definition, the best definition of agility is the design of the supply chain to have the same cost, quality and customer service given the level of demand and supply volatility.
Over my nine years as an analyst, I am seeing maturity. The industry is maturing in their understanding of agility. In this survey, 97% realize that it is about more than speed and supply chain cycle-time reduction. There is nothing to be gained by doing the wrong things faster.
It is growing in importance. Companies see agility as an important goal. In Figure 2, 89% rank it as important and only 27% state that they are equal to their goal. Only 1/3 of companies have the prerequisite agility they feel they need to run the race. There is a large gap between current importance and performance.
Supply chains are substantially less agile than five years ago. For all, there is a deteriorating level of performance. They are more brittle and less resilient. Many of the programs driven by the first generation pioneers—tight integration of the supply chain, lean process improvement programs, eProcurement and electronic bidding—made the supply chain stronger; but for many, there was an unconscious trade-off of agility.
Base: Total Sample (117)
Q12. How important is it for your company’s supply chain to be “agile” in 2012? Please base your answer on however your company defines agility.
Q13. How would you currently rate your company’s supply chain in terms of being “agile?”
Change only happens through design. Buiding agility happens through conscious choice. Organizational agility improves when organizations focus on three things: the definition of a clear supply chain strategy, the building of strong decision support analytics (ability to model scenarios to understand volatility impacts), and the implementation of strong horizontal processes to sense and translate demand and supply market-to-market. It has to be a conscious choice. Just as an athlete makes a choice to do strength training followed by flexibility exercises, the supply chain needs to recognize the need and build the right design to ensure agility. For so many, it will not happen. They will try to power through supply chain 2020 solely through strength … or wrongly believe that it is all about reducing cycles.
Look for more on the Race for Supply Chain 2020 in my next blog.