Over the last third of the 20th century, supply chain management has been very important to global commerce. Today's high-performance supply chains span the globe. Changes in business processes, information flows, technology and financial models will transform the world further in the next decade. These changes have everything to do with paradigm-changing business models. The next generation in supply chain and business management is at hand.
Eight predictions of things to come encompassing business processes, information management and financial models in supply chain management.
Changes in process management
1. The multi-enterprise supply chain problem will be solved
There are few vertically integrated companies left in today's world. Modern supply chains cross multiple enterprises, accumulating value from multiple tiers of suppliers, some of them half a world away. Synchronizing activities along these multi-enterprise supply chains is the next great task of supply chain management. In short, it will require a scope of collaboration never before seen in modern business.
While collaboration is an evergreen topic in supply chain journals, many real-world initiatives in this realm have fallen flat. Disciplines like collaborative planning, forecasting and replenishment (CPFR) are constantly undercut by unilateral service-level agreements, information-hoarding by channel masters and defensive and retaliatory behavior from partners. What kind of motivation can overcome bad habits practiced over decades?
The answer is "survival." Today's toughest competitors synchronize hierarchies of suppliers and distributors by deploying money and information through efficient command-and-control networks. Their rivals will have few options but to set aside short-term competitive concerns, organizing into supply chain teams to compete. They won't be able to catch up otherwise.
Even if the time is right, can it happen? It has worked in the bricks-and-mortar world, when complementary companies have self-organized into geographic clusters: leather goods around Florence, electronics around Santa Clara, for example. Global, multi-enterprise supply chains are clusters' natural successors—electronically organized and coordinated to compete with one another and with hierarchical giants, supply chain against supply chain.
2. Global process improvement will replace "business as usual"
Of course, building strong, collaborative supply chains takes more than motivation. Optimizing one company doesn't transform a supply chain any more than optimizing one machine transforms a factory. To enable global supply chains, next-generation supply chain management will expand cross-functionally, without stopping at enterprise boundaries. Optimization will be based on a greater business need, not simply on the needs of an individual, functional silo. Continuous process improvement on a global scale will emerge as a fundamental requirement for business success and a core competency among business leaders.
The key to these next-generation processes is demandsupply synchronization, with "demand" in front and in charge. Real-time demand, integrated across customers and customers' customers, will provide suppliers, and their suppliers, with complete supply and demand visibility up and down the supply chain. And since demand and supply are fast-moving and interdependent, supply initiatives will merge with crossenterprise Total Quality Management and Six-Sigma initiatives in a continuous cycle of improvement. Deming's "plan-docheck- act" cycles will flow as a continuous, real-time process.
3. Agile supply chains will replace static hierarchies
Today's collaborative supply chains are high velocity. End-to-end visibility and strong enterprise-spanning business processes accelerate inventory management, product introduction and ordering and fulfillment cycles, for increased competitiveness throughout the chain. As collaborative supply chains compete with hierarchical rivals and one another, victory will go to the most agile teams.
Why? Because demand is never static. Even when its level stays put, demand mix shifts across products with different costs, production constraints and cycle times, from one geographic region to another, and among customers as their requirements and demands shift. To meet the challenge of dynamic demand, supply chains must continuously adapt planning and execution processes, organizations, sourcing strategies and networks—even the configuration of the parameters. The process of dynamically changing the supply chain will happen instantaneously and continuously. Essentially, the supply chain will be tuned as it is managed. The supply chains that keep up—agile in the short run, adaptive in the long run—will lead their industries.
Hierarchies, with static, top-down management structures and redundant organizational overhead will be at a disadvantage in this new environment. Uncooperative practices, like hoarding information or pushing risk onto suppliers and distributors, undermine the trust that allows a supply chain team to function as a single, efficient unit. And yesterday's static tools, incapable of looking beyond functional boundaries, will prove no match for the vision and reach of new supply chain competitors. The best of the giants understand these dynamics. Toyota, for example, is renowned for both its collaborative approach with supply chain partners and its nimble response to market changes. A decade from now, no one will see that combination as rare.
The process of dynamically changing the parameters of the supply chain will happen instantaneously and continuously.
New models for information flow and decision-making
4. Rich data from smart devices will demand and empower new management practices
New information management models are already driving end-to-end visibility, supply chain agility and continuous process improvement across global, multienterprise supply chains. And the sheer volume of it will make the 1990s Internet bubble look like a trickle. Radio Frequency Identification (RFID), continuous demand signals from mobile consumer communications and smart devices built into every imaginable product will extend supply chain visibility down to the unit level and throughout product life cycles.
Automobiles, airplanes and consumer electronics will continuously report operational and usage information upstream in the supply chain, enabling precision sales of upgrades and replacements, continuous monitoring of consumption habits, predictive targeting of maintenance and repair, and, inevitably, a thousand new operations that can't be seen from today's frame of reference. Millions of devices and readers—each with its own Web address—will stay in continuous contact with supply chain hubs up and down the chain. This new, rich information will be the raw material for synchronization at every point along the chain, each member using whatever information is needed to optimize its contribution to the chain's business effectiveness.
To compete effectively, multi-enterprise supply chains must develop new ways of absorbing, managing and using all of this information. New systems must not just manage an avalanche of information, but dynamically update parameters and reconfigure themselves, invisibly and instantaneously taking advantage of the trends they identify.
As complex as all this sounds, there's hope for managing the complexity.With every new source of information comes a new point of leverage and a chance for the agile supply chain to meet or shape consumer demand.
5. Supply chains will know what an individual consumer's needs are as the consumer does
What will supply chains do with all of this information? The same thing they've always done: use it to align supply with customer demand. Monitoring moment-to-moment needs of individual consumers has the power to transform the way business has been done in the past. Visibility lets supply chain partners align supply and demand along the entire chain at once, instead of functional area by functional area.
A product development example: e-commerce has already raised the velocity with which products are introduced and phased through life cycles. Fashion companies—always at the forefront in product life cycle management—are already working on rapid adaptation of product introductions to demand signals, down to individual customization. A few leaders have cut so much time from the demand-to-delivery cycle that they're repatriating manufacturing, because transport time costs them more than offshoring saves.
Customization may take place at many stages in the supply chain, not just during manufacturing.With thoughtful product design, a wide variety of industrial and consumer products are candidates for "postponement" strategies—already widespread in high-tech industry— putting off late-stage manufacturing, assembly and configuration until firm demand signals appear from consumers, smart devices and supply chain intermediaries. Alignment with demand is possible even after parts have been manufactured.
E-commerce has changed the relationships between buyers and sellers. Buyers can select between feature-rich products available later or at higher prices and standard products available right now for less. This demand-shaping approach will become widespread in many industries.
Evolution, change and adaptation will be the hallmarks of any system that connects dynamic supply and demand in an information-rich environment.
Technology advancements
6. Dynamic technology will compress information latency
What kind of technology will be available in the future to help interpret and manage all of this information? Supply chain management will move beyond the borders of the enterprise, and solutions will follow.
Evolution, change and adaptation will be the hallmarks of any system that connects dynamic supply and demand in an information-rich environment. As markets emerge, grow and change, supply chains will reconfigure and adapt, adding new partners, information and business processes as necessary to deliver what the market has asked for.
Tomorrow's supply chain management solutions will compress the latency of information to an absolute minimum, enabling instant global execution and visibility. More important, they will reduce time-to-act to the point where synchronization of supply and demand seems instantaneous.
These systems will scarcely be recognizable from the perspective of today's ownership-focused, enterprise-constrained, enterprise resource planning systems. As a practical matter, they will empower supply chain leaders to accept orders, bid out production and distribution across a global network of partners and promise a delivery date, all as the customer's cursor leaves the "buy it now" button. "Pay-on-scan" business models are likely to have the entire supply chain sharing in the risks, right up to the moment of sale to the end-customer.
7. Advanced simulation tools will accelerate a business's ability to reconfigure rapidly
The complexity and speed of tomorrow's markets won't be contained within static analytical tools. Business managers will use continuous process modeling and simulation tools at new levels of granularity, instead of static measurements, quarterly reports and deterministic spreadsheets, to model and simulate multi-enterprise supply chains.
Business process design, rapid prototyping, testing and validation will all be accomplished in the simulated business environment, before rolling them out in the market environment. Powerful supply chain competitors will not have just a few tricks up their sleeves, but entirely new business models—prepared, tested and ready to deploy when market conditions are right.
Examples of simulation-driven, rapid prototyping of business models exist today. Cutting-edge portfolio companies prototype, assemble and operate entirely new supply chains, built from manufacturing, distribution and business-service partners in much the same way that fund managers design, build and manage stock portfolios today.
Finally, modeling and simulation tools will accelerate continuous process improvement by providing a rapid, risk-free way to test and tune business processes and scenarios before rolling them out in the real world.
Changes in financial models
8. Cash versus cost: financial models will catch up with new business models
Today's financial models for supply chain processes are based primarily on activity-based costing.While this is an improvement over its cost-accounting predecessors, the tension between dynamic supply chain business processes and activity-based costing is already apparent. Supply chain decisions using cash as the basis result in a significantly different outcome than those focused solely on cost. Conversion to cash-flow decision-making will reveal the actual value-contribution of supply chains, and the real business impact of any disruptions.
It's a little surprising that the financial side of the supply chain transaction stream has received so little attention. Look for this oversight to be corrected soon, as companies realize the value of cash-flow-based supply chain operations.
Beyond even cash-flow and value metrics, a milestone in the evolution of financial models will come as many industries adopt pay-on-scan compensation for supply chain partners.
Summing up
Taken individually, none of these trends may seem revolutionary. Supply chain coordination will continue to spread from its origins on the factory floor throughout global, multi-enterprise, supply chain networks. Collaboration, business processes and process-improvement disciplines will grow to match supply chains' own scale and speed. Rich data will come from everywhere, all the time, and systems will emerge to catch up with and even pull ahead of events, using modeling and simulation. Supply chains, and the systems that coordinate them, will accelerate insight and action, response and adaptation. Financial models will emerge to enable new ways of doing business, delivering ever-increasing value to consumers and fair, and evenly shared, compensation to the supply chains that serve them.
In the future, the world will be transformed by new business paradigms, brought on by the convergence of technology and management processes and a newly empowered customer base.
— By John Cummings
