The world’s most strategically managed supply chains create opportunities for top-line business value. They are rare by number but not volume, and include some global electronics, industrial, life sciences, and consumer products companies that already drive massive benefits by managing end-to-end supply chain performance.
That doesn’t mean a company has to be big or even global to keep advancing toward a demand-driven loop of friction-free fulfillment and replenishment capabilities. But it’s my experience that most supply chains are cost efficient but not advancing in their end-to-end operating model capabilities. They’re stuck in a set of project or functional excellence silos for a variety of reasons, and in this blog I’ll touch on three of the most common reasons.
First, let’s recap what supply chain maturity means. I’ve spoken a lot about Gartner’s 5-Stage Supply Chain Maturity model. Here’s a summary aligned to Gartner’s definition.
● Stage 1: Traditional supply chain; the organization is siloed and reactive.
● Stage 2: Project-focused improvements; the supply chain organization makes project-based improvements to small functions in anticipation of increased local efficiencies.
● Stage 3: Functional area and integration focus; “centers of excellence” in the demand, planning, and supply functions of the supply chain; focus on building functional excellence within silos
● Stage 4: Integrated end-to-end collaboration processes; the supply chain is demand-driven, with outside-in, end-to-end processes integrated with other key business operations areas (enterprise resource planning, marketing, sales, and finance).
● Stage 5: Innovation and networked value creation; the agile business is capable of creating value and shaping demand through a fully integrated end-to-end digital ecosystem.
The potential for business value-creation increases as the end-to-end supply chain matures in its integrated management and development of people, processes, and technology capabilities.
So why don’t all supply chains keep maturing along this transformation journey? I see these common scenarios:
Reason 1: Lack of Strategic Leadership Vision
Sometimes supply chains get stuck because no one in the organization is leading the creation of value with a strategic focus on end-to-end supply chain management. The mental model of supply chain is often traditional and limiting. The mantra is to just control costs and all will be well. While managing costs is an essential foundation on which to build, that familiar cost center vs. profit center assessment is an outdated, limiting, and short-sighted view.
In the world of Industry 4.0, information, processes, and connections—not just materials and assets—drive value. The end-to-end supply chain is rich in all three. When supply chain management effectively aligns and integrates people, processes and technology around data resources and end-to-end processes, the organization starts creating value by sensing and shaping demand. But, this requires change leadership and a galvanizing vision.
Reason 2: Satisfied with “Demand Sensing”
At its highest level, demand shaping is putting the right product in the right quantity in the right place at the right time for the right buyer. But there’s more to it than just achieving a “perfect order or delivery.” Companies can shape demand by controlling availability, pricing and other market-facing factors through end-to-end supply chain management and analyses of consumer insights. If you’ve ever wondered why, during every Christmas season, there’s at least one must-have toy that no store seems to have, think of the strategy of demand shaping; and when it’s stocked out, think of it as a demand sensing or planning shortfall.
Successfully shaping demand is a complex business and leadership endeavor, and I see a lot of supply chains get stuck just “sensing demand” in Stage 3—which means having the information and visibility to know there are stock outs or excess inventory in the system and know where inventory is situated, then reacting to trigger supply or change plans. By contrast, in Stage 4, companies are using end-to-end supply chains to be proactively business-growth-focused (not reactive), and using demand sensing and shaping capabilities as the basis of the Business Operating Model. The big gap, and where companies often get stuck in their transformation journey, is between Stage 3 and Stage 4. This is often because of a siloed approach to traditional technology issues such as integration, data, and application siloes. Functional organization boundaries and disconnects are also often a barrier to moving to Stage 4 capabilities. By providing a digital ecosystem and overarching end-to-end architecture, a business can break through information and process silos and provide the business with end-to-end visibility, analytics, and execution capabilities that enable real growth.
Reason 3: Still in Silos
Silos still exist in supply chains; these can be functional, organizational, data, technology, or process silos. While these may be measured and appear as functional efficiencies within a silo, I see the barriers to end-to end-supply chain transformation as the lack of integration and enterprise architecture across legacy technology solutions, data, and processes. The key capability is to make the right business trade-offs across the silos. Disconnected end-to-end visibility into enterprise-wide data and processes prevents many supply chains from advancing their Operating Model capabilities.
The solution is one overarching, cloud-based, end-to-end supply chain architecture. By establishing this digital ecosystem architecture, supply chains can begin analyzing, translating, and responding to demand opportunities across the end-to-end business that they often currently miss. This end-to end-digital ecosystem is a new enabling capability that provides scale and agility across the supply chain as more Industry 4.0 practices take hold in the enterprise and among internal and external partners and customers.
Next Step: Why Is Your Supply Chain Stuck?
Supply chain management is not easy, it’s an integration of people, processes, and technology. If you’re working the journey and strategizing to move closer to Stage 4 performance, then pat yourself on the back and acknowledge that you are on a growth-driven transformation journey. Getting there is easier with a partner like Oracle that understands how to align people, processes, and technology around a scalable digital ecosystem. This is in contrast to trying to build this end-to-end supply chain capability from the bottom up with a complex heterogeneous architecture of applications, people, processes, and data!
For more information on Oracle Supply Chain Products, visit www.oracle.com/scm