I was lucky to attend the Gartner Supply Chain Executive Conference in Phoenix last May. 1 of the keynote speakers was Mike Duke, the former CEO of Walmart. He summarized his career in 10 pieces of advice he got from 10 key persons throughout his life. His parents, his teacher, his first boss, … Advice #1 received from his parents: “There’s no substitute for hard work”. That resonates with me. To understand today’s supply chain complexity … there is no substitute for hard work!
I can easily see multiple layers of complexity that require time and hard work, to get you through and to bring you to the level of a supply chain professional.
Supply Chain Complexity 1 – Plan/Source/Make/Deliver/…
For anybody who wouldn’t know, Supply Chain is a complex domain because it studies the interactions in a complex and networked system. It tries to connect the suppliers’ supplier to the customers’ customer. It is full of conflicting objectives that need to be balanced in some magical way. As opposed to ‘functions’ like finance, operations, … it is not commonly taught at Universities or in Business Schools. As a result, only the brave survive.
Take the sheer vastness of the planning domain. Our definition of Sales Inventory and Operations Planning (SiOP) at Solventure contains the following steps:
Customer-product segmentation
Not all customers are equal. They don’t have the same volume, they don’t have the same margin. They differ in their willingness to innovate or to collaborate. Not all products are equal. Some are more or less strategic. Some have a better product fit, others don’t. Differentiating service across customer-product segments is key in creating focus and driving more value from your supply chain.
Product management review
Product managers have a huge impact on the performance of your supply chain. 7 out of 10 NPI’s are overstated. They create excess inventory which is consuming cash and sometimes scarce capacity. That also implies that 3 out of 10 are understated, leading to service issues, lost sales and firefighting costs. Product managers also have a huge impact on the your supply chain complexity. In general we are good at creating new products but less good at taking non-performing products out. Pulling product managers into the SiOP cycle is key in improving the service-cost-cash balance.
Demand planning
Demand Planning is still a big struggle in many, even mature companies. Getting to grips with clean data. Making the job easy for sales. How to ensure their buy-in? Where and how to use statistics? Dealing with ‘events’ like promotions, projects, tenders, … each of which are disruptive to your supply chain. How to collaborate with key customers and channel partners? How to include the impact of external factors like weather, exchange rates, economic factors, … You can spend a lifetime understanding just this!
Inventory management
How much inventory do we need? How to set good inventory targets? How to calculate inventory parameters? How to follow-up inventory health and performance?
Supply planning
From the earth to the moon … how to span the gap between strategic planning, in yearly periods, 5 to 10 years out … to the short-term scheduling and sequencing? How to integrate my RCCP, master planning and scheduling with my backbone of different ERP’s? Another lifetime to spend!
Exec SiOP
How do we get the CEO in the driver’s seat? Which type of navigation can we give when there are roadblocks ahead? After spending some lifetimes on the above, you can spend another on bringing it together! And this is just for the planning domain. You can talk about using lean and operational excellence to improve the make process, about strategic sourcing and supplier development to improve the source process, or about multi-modal and real time tracking to improve the deliver process.
Supply chain is complex. There’s no substitute for hard work if you want to understand it.
Supply Chain Complexity 2 – Processes/People/Tools/Analytics
A fool with a tool is still a fool. But a farmer with only a horse will be a poor farmer.
A second complexity in the supply chain domain is that to drive improvement, more than in any other domain, you need to bring together good process knowledge, supported by professional tooling, clever analytics, and excellent change skills.
Many companies try to run their supply chains on Excel. In general, complexity is far too big for Excel to succeed. As companies try to plan in both volume and value, as they want to add scenario management capabilities, we see the Excel ghetto’s break down. The process should always come first. In depth knowledge of supply chain processes is key. But in general, companies should invest more in decent supply chain planning and execution tools.
There is a highly analytical side to supply chain: statistical forecasting to support the demand planning process, statistical inventory modelling, using linear programming to solve supply planning problems, … to name a few. These act like turbo-chargers to an engine. If you have a good process and a good tool, the right analytics can easily get you 30% extra performance. But it requires expertise and precision. When applied in the wrong way, you can easily blow it up!
Given the complexity, the people are crucial. You can have the best process, with the best tool and the cleverest algorithms. If the people distrust it, they will switch back to their old way of working. Engineers are notoriously good in the hard skills … but as notoriously weak in the soft skills. Improving the supply chain really requires that you bring both together. That’s a stretch for many of us. Another challenge and complexity is when you want to become a professional in supply chain.
Supply Chain Complexity 3 – The impact of (fast changing) technology
Manufacturing 3.0 and big data are about to transform the way we do business. If we come to grips with the complexities above. We have the pleasure to see much of that being disrupted in the years ahead. New champions will be born. Some industry leaders are to be disrupted and will soon belong to the past.
I’ve taken the time to take a course on big data techniques: Distributed File Systems, MapReduce, Hadoop, PageRank, Frequent Itemsets, Clustering, Recommendation Systems, Machine Learning, … The new space is huge, the killer applications to the supply chain are still uncertain. This year I guided a master thesis on ‘hype detection’ using ‘social media information’. Hypes are both a threat and opportunity to retailers. If a product gets hyped (unexpectedly), the supplier will go out of stock. The retailer that can detect the hype first, will be able to maximize their share of the supply. They will not only be able to sell more of the hyped product. They will actually have product in their stores, attracting the customers, who will not only buy the hype product … but much more! In the master thesis we have shown that the use of twitter feeds from the US has a predictive power for retailers in Europe. The potential is huge. It’s 1 drop in the ocean of change that big data is going to bring. Staying on top of these evolutions again requires hard work and lots of perseverance! If you were still looking for a challenge … you just found one!
Supply Chain Complexity 4 – Increasing market speed and turbulence
If only we’d be able to pause the clock and take some time to think and consider possible alternatives. We wish! We have to do all of the above in a situation where customers are ordering products here and now. At a time that global markets are moving at increasing speed and with increasing turbulence. The key theme on the Gartner conference this year was the ‘bi-modal supply chain’. Mode 1 is executing and delivering in the ‘here and now’. Mode 2 is keeping an eye on the future and disrupting our own supply chain. Let’s hope it doesn’t lead to split personalities!
Supply Chain Complexity 5 – Attracting and developing talent
As complexity grows, we need to grow ourselves and the people around us. The struggle with talent is most obvious in companies that went through restructuring. As losing blood weakens your body, losing talent weakens your supply chain. I’ve seen companies drop back significantly in supply chain maturity, requiring a restart by explaining the basics from ‘which input to use for your forecasting process’ to ‘how to calculate a safety stock’. Improving systems and technology can go quite fast. Attracting and developing supply chain talent is a matter of years. It is another complexity when tackling the above challenges, and it is probably the most determining factor when it comes to the speed you can handle in your change process.
In summary
So yes, supply chain is a complex domain. And I take the advice from Mike Duke, if we want to understand the complexity of today’s supply chains, there will be no substitute for hard work! Let me hear your thoughts! It will make the journey even more exciting and rewarding!
