Is Operational Excellence Possible in the Omnichannel-Fueled Global Supply Chain?
By Greg Kefer, [email protected]
The latest study on the risk posed by supply chain disruptions by Deloitte just hit the news. Executives were surveyed regarding feelings (or fears) about their exposure to unexpected events in their global supply chains. As you can imagine, most feel unprepared and report disruptions have become more costly. Negative outcomes in the global supply chain like costly margin erosion and demand change are all too common for most companies.
We see a report like this about once per quarter. Here are links to two recent reports that highlight supply chain risk and disruption anxiety among executives:
Part of the problem is that supply chains have gotten longer and more complex as companies expand sourcing and selling in new regions around the world. At the same time, there’s a constant push to outsource production while simultaneously running as lean as possible.
We all heard about what the Japan disaster did to the automotive and high tech industries. Supply chains were disrupted to a point where companies couldn’t meet demand; they lost sales and ultimately missed their profit goals for many subsequent quarters. In fact, Toyota was knocked off its perch as the world’s number on automaker until just recently.
For every large-scale natural disaster, there are also countless “small” disruptions that can inflect equal amounts of damage to a company or an entire industry. Few of us heard about an event in March of 2012, where an explosion in a factory in Evonik, Germany affected half of worldwide supplies for a resin that was essential to auto parts suppliers. It caused a small slowdown in auto production which, for an industry of that size, is very significant considering it was caused by a single factory fire.
For retailers, the notion of an evolving inventory mix supported by a global sourcing model is not new. However, when you factor in the push to open new stores in emerging economies in the era of omni-channel, the supply-demand matrix looks especially daunting. It’s not a matter of if retailers should expand into new markets or become omni-channel black belts, it’s how fast it can be done. It’s a matter of long term survival.
Most companies know that the hard-wired, rigid supply chains of the past are not capable of supporting the 21st century global commerce model. Agility is far from a new concept and few companies have really mastered it, but the ability to adapt quickly to disruptions and opportunities is critical.
The path to operational agility has not yet been forged. Lots of companies are investing in technology to get them there, but most are making a fundamental IT mistake. They’re trying to solve the agility challenge with the same business software they have been using for the past 30 years. Unfortunately, traditional business software systems come up short when it comes to supply chain orchestration on a global scale. Those systems were designed to work within the single company, not between the different companies and partners, which make up a global supply chain.
Tomorrow’s operationally excellent companies will operate as networks in-step with their global army of partners. The key driver is supply chain visibility. Companies must be able to see inventory and information in real time across their supply chain networks. And partners must be able to see the same information.
The connection between operational agility and visibility is one reason why supply chain visibility resides near the top of most of the technology priority lists. And the reason it has been on the wish list for so long is because most companies have not yet achieved it. The notion of a central supply chain information monitoring system that connects networks to a single version of truth is far from reality at the majority of companies.
Visibility is predicated on a steady diet of rich, timely information into the status of inventory, production, payments, logistics and shipments. This is not achieved by hooking up an ERP system to an EDI network because the rate of change is too great for those hard-wired networks to keep up. Companies do not have the time to rebuild their networks every time they change a partner or move to a new region.
Cloud visibility platforms that are designed for inter-company network collaboration and information operate more like shared utilities, where partners can turned on or off depending specific needs. We are beginning to see published examples of these cloud systems at many companies across industries, including leaders like Pfizer, CAT, Adidas and Nestle. These are multi-enterprise systems that mirror a LinkedIn or Facebook model. They have advanced software capabilities that are Web-based, but the real value is the networks that are part of the offering.
The key advantage with cloud platforms is their networks are many-to-many, which means once a partner joins, they can work with multiple customers through that same connection. And, as new enterprises join, they find many of their key partners already active on the platform. So rather than starting from scratch every time, the platform is more like an industry information utility.
It’s hard to predict disruptions, but when they happen, success is measured in terms of how quickly and effectively a company responds. If you can’t see, you can’t make smart decisions. And for retailers who are trying to make their supply chains capable of supporting new omni-channel strategies, the notion of a single pool of inventory is going to be hard to master unless there is a single informational version available for all to see. That can be found in the cloud through the device of choice.
The risks are out there, but so are the rewards.
Greg Kefer is VP corporate marketing for GT Nexus, operator of the world’s largest cloud-based supply chain platform. Contact him at [email protected]. Learn more at GTnexus.com.