November 16, 2016
In a recent article, Forbes contributor Jonathan Webb made the case that there are two main departments involved in the manufacturing of goods: procurement (supplier contracts) and supply chain (logistics). He rightly argued that this bicameral model makes it difficult, if not impossible, to create anything remotely resembling a contingency plan. How can production swiftly respond to a supply issue if they don’t know about it until it’s happening? That’s like trying to get out of the way of a moving vehicle as it’s hitting you.
Turning water into wine is hard enough with two isolated business departments, but something Webb may have overlooked is that mature enterprises with agile service models actually have three silos:
- Design: A strategic supplier network is mapped out.
- Build: Procurements happen, and the supplier network strategy becomes a reality.
- Run: All the gears are in motion and you are able to forecast to keep things running in a predictable and responsive way.
A Silo Is Still a Silo
In practice, many organizations have already reached a point where the supply chain is influenced by all core departments (the three-pronged model above). Thus, Webb’s “cross-functional” solution, or the fusion of supply chain and procurement, is hardly universal.
That said, the three-pronged model still doesn’t solve the silo dilemma. In fact, the supply chain itself is still split into silos under that system. This is particularly true in enterprises where specialization is applied to maximize value in each area of competency (e.g. having procurement teams specialize in cost negotiations, supply chain ops specializing in forecasting, sourcing specializing in supply network design, etc). The down-side of this structure is that over time, they become further silo’d and suboptimized. While each works to the best outcome of their function, the impact across the enterprise is not fully considered in their respective decisions. As a result, there are trade-offs between maximizing the function’s benefits versus speed and simplicity. In reality, they need to work in concert to maximize enterprise outcomes.
Digitalization: Where the Dream Becomes Reality
Here’s the dream we’re left with: the creation of a central, synchronized supply chain where the three different objectives (design, build, run) work in perfect harmony toward the same end – enhancing an enterprise’s operational and financial outcomes.
And here’s how we think this can be achieved – it is a system in which all enterprise data is accessible in a single solution, not unlike Google’s aggregation of disparate web domains – or for that matter, your brain. Immediately, this goes much deeper than the cross functionality posited by Webb. No one is doing any departmental crisscrossing because everyone is on the same ground to begin with.
Second is the deployment of advanced analytics that make sense of this massive reservoir of data (cognition). This makes it possible to maximize overall value without direct human intervention. What we end up with are the following three opportunities:
1. Digitization of the entire supply chain: By linking collaboration across all supply functions, total landed cost, risk and flexibility at the supply chain design phase make it possible to automatically reduce cost and effort for procurement and operations down the line.
2. Real-time feedback on supply chain actions: Real-time cost-of-goods-sold, sales, working capital and forecast data parsed by artificial intelligence can determine the relationship between design and execution.
3. Predict points of failure and opportunities within operations: Digitization of the supply chain and a constant flow of feedback means there’s more data available to identify a problem, or an opportunity, early on, allowing for swift, responsive action to be taken – across the three aspects of design, build, run.
What we’re talking about here is a template for a self-sustaining supply chain, free from all silos, with human intervention being strategic and “conducting” actions.
With self-driving vehicles just over the horizon, the idea that a product can go from raw material suppliers to suppliers to manufacturers to distributors to customers in an orchestrated way, at the lowest cost and with the least amount of value lost along the way, is no longer a pipe dream.
The unified supply chain is an imminent reality.