Supply chain analysts like Lora Cecere of Supply Chain Insights have criticised the slow pace of innovation and progress in the supply chain. In her blog she recently quipped "what I see is big hat, and no cattle" with a circle of stagnation in the vendor and end user supply chain community. I'd like to share with you my vision for how companies can break out of that circle by changing the established roles of technology, people and processes in supply chain operations.
For many years now I have believed that the most effective way to manage a supply chain is by adopting an approach much like a modern control room of a large operation, such as an oil refinery. The heart of that control room is an important piece of technology: a control system that allows operators to monitor the status of key performance indicators, generate predictive alarms well before a mishap, and translate high level off-line directives into precise actions. Detailed and robust models allow the system to translate huge amounts of data into digestible information for the team overseeing the operation.
Essentially a modern day control room moves the operator from being 'in the loop' to 'on the loop'. That is, the operator is no longer running around making on-line adjustments, dealing with difficult-to-assimilate data, and struggling to keep everything under control. Gone also is the over-correction and process instability caused by the time lag between the operators' action and the process's reaction. Instead, operators can manage the processes at arm's length.
A supply chain control room
Today's supply chains are also dynamic and complex processes, but without the benefit of these advanced process controls. This explains why planning teams spend most of their time tuning forecasts, expediting goods and fighting fires. Alarms may come after it's too late to gracefully resolve problems, if at all. Everyone is busy trying to keep the supply chain under control, but the results are sub-optimal. Forecasts are off, inventory is out of place, and service levels aren't what they could or should be, despite heavy/expensive inter-depot transfers.
In a supply chain control room, powerful statistical engines crunch quantities of data behind the scenes, distinguishing between and planning for both fast moving and heterogeneous (lumpy and long-tail) demand. Inventory optimisation automatically translates customer service policies into optimised inventory mixes to create profitable responses. Planners and business managers take a low-touch approach that involves fine tuning the demand plans, applying their specialist knowledge and creativity.
Recent developments have conspired to make the supply chain "control room" vision much more achievable. Downstream data is more available. Demand sensing techniques are maturing. Predictive analytics and big data techniques are becoming available for analysing demand and recognizing underlying behaviours. Supply chain planning and execution have started to merge. Finally, progressive supply chain executives have started to see the benefits of letting the technology handle more of the day-to-day workload, allowing planners to plan off-line, rather than fire-fighting most of their day.
Making the transition
As a technology-based society, we have been through this type of transition many times before. For example, in the 1960s and 1970s machine tools migrated from manual to numerical (NC) to computer control (CNC). In the 1980s, manufacturing firms adopted statistical process control (SPC) techniques that dramatically improved quality and stability. More recently, planes now "fly by wire" rather than via direct manual mechanical control. The transitions often posed challenges, but the end results were always dramatically improved and people moved into more knowledge-intensive activities. The decision to migrate involved a leap of faith, but after which, nobody ever looked back.
Some of our clients are starting to transition to a new supply chain vision. One early adopter is global electronics distributor RS Components. Their head of supply chain planning, Andrew Lewis, recently described in a web seminar how automating their statistical forecast and optimal inventory targets planning allowed their planners to focus on enriching the forecast with market intelligence. With this approach, he says, he was able to drive a $3 million in inventory reduction in just days.
When you look at your own supply chain planning, I encourage you to think about how you can dramatically improve your processes as you turn over more of the groundwork to technology. Part of the benefit is efficiency. It takes a lot less work to oversee a more automated process than being intimately involved in every step. But history has shown that the far more valuable benefit is effectiveness. An automated process holds the promise of much greater stability and improved results. At some companies we have seen it happen. Perhaps yours is ready to begin the evolution as well?