Supply Chain Management in the 21st Century



logistics truck

Competition in today’s global markets as well as the introduction of products with short life cycles have heightened expectations of customers and have forced business enterprises to invest and pay attention to supply chains. In light of this, together with continuing advances in communications and transportation technologies e.g mobile phones, internet and artificial intelligence; has geared continuous evolution of the supply chain and of the techniques to manage it effectively.

The late 20th century was faced with significant changes in the structure of the world’s economy and brought with it new challenges in all aspects of business and operations management. Moreso, the trend aimed towards globalization of enterprise has continued into the 21st century. Supply chain management has its focus placed on achieving the best service levels of demand from its market as well as optimizing the total cost of supply itself. A sea of change has been achieved in the 21st century as a result of the embedding product and process innovation in supply chain operations and consciously managing and shaping demand from customers. Twenty years ago, the supply chain of a typical product company would report to manufacturing, and be responsible mainly for inbound materials management and outbound shipping. According to the Supply & Demand Chain Executive magazine, supply chain reports to manufacturing in only 6% of companies, while in 61% of companies, the head of supply chain position reports directly to the CEO, GM or president of the business. It is clear that the supply chain has grown, and businesses are taking notice.

Supply chain has evolved to a new level as there’s a lot of potential from new age supply chain management solutions. These solutions have been able to curb discrepancies in areas of financial crisis, position supply chains as enablers of revenue margin growth, procurement processes that support the sign as well as management of a sustainable supply chain. Technology has been a great facilitator of supply chain companies, Gartner recently reported that the global supply chain management software market contracted 0.7per cent from 2008, with revenue totaling $6.2billiion in 2009.

TRENDS IN SUPPLY CHAIN MANAGEMENT

A series of discussions with business leaders conducted by the supply & demand chain executive magazine, uncovered the following trends in supply chain management.

  • There is a possible emergence of a closed loop supply chain. Occasionally referred to as cradle-to-cradle supply chain, this term describe a zero-waste supply chain that re-uses all materials. Recycling is one big innovative aspect of technology, 20 years ago, a lot of emphasis wasn’t really placed on recycling. However, the 21st century has shown faith in the aspect of re-using materials so as to avoid wastage of materials that would have been used to achieve other things.
  • Certifying the suppliers as a sustainable source is very important. Comprehensive back-end research is required to manage this process, and enormous effort is being devoted to ensure the selection of the right certification system
  • While most participants are looking to international customers for future market growth, few are prepared for the complexity that results from serving global customers with regionally customized products
  • End-to-end supply chain cost optimization will be critical in future
  • Risk and opportunity management should span the entire supply chain, including the supply chains of key partners
  • Existing supply chain organizations are not truly integrated or empowered — lack of integration between product development and manufacturing functions are standing in the way of capturing the benefits of economic recovery

Although supply chain management practices are growing rapidly, challenges are inevitable and there is a need to understand that until the industry (SCM Industry) finds methods of overcoming these challenges successfully, companies will still not achieve efficiency and profitability in their globalization efforts.

The 21st century holds a lot in stock for supply chain companies and as such there is a need for SCM managers to know how to track and modernize supply chain challenges that they may encounter. Some of the secrets to this include the following;

The world of manufacturing has changed, and you need to change with it:

25 years ago, manufacturers owned their own factories and controlled their own production. They had complete detailed knowledge of the schedules and costs of manufacturing. Companies could adapt quickly to changes in the marketplace and restore the supply/demand balance more easily.  With complete visibility into factories and sales offices, companies could easily find the status of inventory, work in progress and customer orders currently in the supply chain. On some occasions, more and more design, marketing and sales take place on home shores while other parts of manufacturing and final assembly are outsourced to offshore suppliers.

 Legacy planning applications won’t cut it any longer:

Having the idea/ideology that legacy planning systems such as APO’s, i2’s, JDA and Oracle applications designed in the 1980’s and 1990’s won’t be able to keep up with the challenges of the 21st century. These applications were not designed to handle the manufacturing of the 21st century as today’s rapid and unexpected changes from remote supply chain partners and customers are beyond their capacity.  These applications were created to handle complex computations of large sums of data. Legacy planning systems can’t deal with today’s global outsourced, multi-tier supply chain.

Some of the flaws of legacy planning includes the following;

  • They are designed around single enterprise focus and not the multi-player reality of today.
  • Based on the fact that they were not created in the 21st century they produce plans based on extremely complex models that are difficult to adjust to.
  • They do not seek transparent input from stakeholders.
  • Based on the fact that they deal with mathematical models, they cannot capture perfectly, information from all sources.

In uncertain times, trust is everything:

Having to bank on trust can be very demeaning. However, supply chain experts have identified four major stages of development in supply chain management, with each stage showing a more advanced level of maturity. They include; Marginal, Rudimentary, Classic and Ideal.

Stage 1, Marginal:

The marginal stage is characterized by informal and sporadic planning, with little or no integration between demand and supply planning. In relation to this stage, partners relate as adversaries focusing on price and volume alone. Not the other way round. Communication in this stage is through flurry, emails, faxes and file sharing.

Stage 2, Rudimentary:

At this stage, demand and supply plans are made differently. However, some formal planning can be seen at the beginning. With each organization using a standalone planning system. Manufacturers try to optimize supply chains with incomplete data. The rudimentary and marginal stages have their limitations for supply chain partners and do not foster strong relationships or any joint risk/reward behavior.

 Stage 3, Classic:

This stage is characterized by regular meetings attended by cross-departmental participants. Processes are also integrated and plans aligned within the enterprise. The classic stage shows more responsibility, it is still far from a completely responsive supply chain even if it helps secure data channels.

 Stage 4, or Ideal: 

The ideal stage is characterized by enterprises that have achieved fully integrated supply-demand planning with event-driven sales operations planning, (S&OP) meetings. At this stage, enterprises have attained that level where system alerts tell everyone involved when any serious supply-demand imbalance is detected. Here, manufacturers have access to customer data and it’s been integrated with internal planning systems, so that S&OP plans are aligned according to what they have from their clients/customers. The ideal stage also demonstrates the highest level of trust among all business partners. Partners work together and model alternate scenarios to help decide what’s best for everyone and as such this creates an atmosphere of high trust and a win-win situation for everyone involved.

For best results, optimize your processes not your plan:

The 21st century demands a new class of software that goes beyond legacy planning. It is however, important to note ‘that legacy planning software’s are not sufficient in today’s global demand. Today’s integrated supply chain demands 21st century sales and operations planning. An emerging genre, sometimes called “response management”. Optimizing your plan isn’t just enough you need to optimize your process. Companies today need technology that provides quick decision support for managers seeking to maintain an effective balance between demand and supply. In particular, supply chain managers should look for three key strategic elements:

Agile response, live collaboration and flexible “what-if testing”. Agile response allows team members to react in a timely manner and move toward event-driven planning. While, live collaboration on the other hand, creates an online forum where human intelligence can help capture all the degrees of business partner relationships and flexible “what-if testing” allows decision makers weigh the consequences of several decisions, precisely with all the information they need for effective/efficient planning.