Supply Chain Shaman

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Supply Chain Resilience. Really?

Today, I speak at the North American Manufacturing Association, Manufacturing Leadership Conference, in Nashville on the use of data to improve supply chain resilience. This follows the recent announcement by the White House Council on Supply Chain Resilience launching 30 proposed actions to strengthen America’s supply chains and the ASCM recent publication on resilience. Here I share some insights from my research.

Background

The Council of Supply Chain Resilience met for the first time this month. The Council is co-chaired by the National Security Advisor and National Economic Advisor, and include the Secretaries of Agriculture, Commerce, Defense, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, the Interior, Labor, State, Transportation, the Treasury, and Veterans Affairs; the Attorney General; the Administrators of the Environmental Protection Agency and the Small Business Administration; the Directors of National Intelligence, the Office of Management and Budget, and the Office of Science and Technology Policy; the Chair of the Council of Economic Advisers; the U.S. Trade Representative; and other senior officials from the Executive Office of the President and other agencies.

Key elements include a focus is the use of the defense production act to improve accessibility of medicines to prevent drug shortages. Improve cross-government data sharing and analyze resilience. Expand the “FLOW” program for logistics information sharing to forecast transportation flow. In addition, the Council will conduct a supply chain review by December 31, 2024, to evaluate the impact of the supply chain on National Security

Lora’s Take

I think that we need to be skeptical without getting political. (Think this is possible? Somedays, I am not sure.)

Let’s start the beginning. I am not clear on the White House mission. What is supply chain resilience? And why does it matter? I find that the term is used, and now over-used, a lot. But few define it with use.

When you ask most supply chain professionals to define resilience, the question stops the person in their tracks. The reason? We are not clear on definition. I define supply chain resilience as:

Supply chain resilience. The ability of an organization to deliver reliable and consistent results for revenue, margin, customer service, and quality in the face of demand and supply variability. Source: Supply Chain Insights

ASCM defines resilience in the SCM Supply Chain Dictionary as the ability of a supply chain to anticipate, create plans to avoid or mitigate, and to recover from disruptions to supply chain functionality. In short, resilience is what keeps things running during a disruption — and what helps companies get back on track afterward.

So, if you use the Supply Chain Insights definition, you might ask, how are we doing commercially against this goal? Interestingly, in Q3 2023, 38% of manufacturers, distributors and retailers missed their target for revenue guidance for the quarter. The result was restatement. My conclusion? If businesses cannot accurately forecast revenue, the organization is not resilient.

I believe that the ASCM definition is too reactive and rooted in the traditional, and outdated concepts on risk management. I would like for organizations to be more proactive to sense, respond, and adapt. Today, this is not the case.

Let me give you an example. I am currently doing research on inventory management. In the research, I ask inventory planners to define resilience. I cannot get a clear answer. Of the twenty companies interviewed, only one can answer the question, “Do you have a good inventory plan?” We have implemented conventional demand planning technologies and processes, yet, in eight out of ten companies that I work with, I see a negative Forecast Value Added (FVA) measurement. Is this a risk to resilience? Yes, I think so. No technology in the market measures inventory health.

So, you might say, so what? My answer is why are we spending so much money in technology and human capital to degrade the forecast with an exponential impact on inventory. So, my question for the President’s task force is, “If the industry is not clear, and you don’t have a definition, how can you deliver your mission?”

Lora’s Advice

If the President’s group called me and asked for my advice, these are the steps to take:

  • Ask all “experts” to leave their egos at the door.
  • Define the mission.
  • Align on definitions.
  • Consider actions to take
  • Drive execution

My fear is that the group is focused on tactics without this alignment. I would then consider taking five actions:

  1. Build on the Power of Existing Networks. Force interoperability. Build a network of networks. Under the Defense Production Act, force all public network companies to interoperate. Improve visibility across the networks that operate in self-serving business models. For example, change the business models so that Ariba must interoperate with GT Nexus, E2Open with Elemica, MPO (Kinaxis) with Nulogy, etc. Maximize the value of the purchase order flow data already in the existing networks. (A purchase order changes many times and needs synchronization. Reporting off of transportation data is a delays the signal by weeks and months.) The Flow project, which is a limited set of transportation data to forecast future demand, is not well defined, and is like putting a teaspoon in the ocean. Just as DARPA led the way to build the Internet, drive an interoperability model across networks and harvest the data through the Department of Commerce to report flows. (Enforce the private nature of the individual transactions and harvest the data to help commercial entities improve flow and drive insights.)
  2. Stop Venture Capital Turnover of the Existing Networks. A major risk to the supply chain is the venture capital churn of network companies. Exostar’s purchase by Arlington Capital Partners from Thoma Bravo was completed this month. The pattern is dangerous. Thoma Bravo buys the company, sheds marketing assets and defines a more conservative R&D agenda to take money out of the network. Thoma Bravo bought and sold Elemica and GHX. In a similar fashion, Insights Partners bought and sold E2Open. Each churn reduces the opportunity for innovation and introduces supply chain risk.
  3. Mandate Unique Identifiers. To track fair labor, food safety and improve corporate social responsibility, we need to be able to improve track and trace capabilities. To accomplish this, we need unique and authoritative identifiers for company entities, warehouses and manufacturing locations.
  4. Provide a Data Lake of Government Data to Use for Demand Predictions. With advancements in narrow AI, NoSQL, and the graph, companies are experimenting with the building of outside-in processes. Catalogue the data making it available for commercial usage.
  5. Constantly Define and Analyze Defense Supply Chain Capabilities. The current understanding and usage of network design and inventory optimization technologies by government agencies is low. The DLA was chartered under an efficiency agenda, when warfare requires a responsive supply chain. These are different by design and the armed forces lacks modeling technologies to understand the differences. Invest in building and refining modeling capabilities for requisite flows for ship building, aircraft refurbishment and armaments. Invest in simulation and optimization technologies to improve readiness.

Wrap-up

I witness too much groupthink in the industry. The lack of clear definitions and objectives makes me itch. I feel that the industry is hi-jacked by opinions and too few facts and well-founded definitions.

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