Pandemic Supply Chain Lesson 3: THE NONLINEAR SUPPLY CHAIN IN A LINEAR BUSINESS WORLD

Pandemic Supply Chain Lesson 3: THE NONLINEAR SUPPLY CHAIN IN A LINEAR BUSINESS WORLD

--Hint: Supply Chains Are Complex—

Coronavirus has opened the eyes of many manufacturers and retailers with regards to supply chain management (SCM):

·       Supply chains are nonlinear

·       Supply chains are complex

·       There are supply chains within supply chains

·       The upstream supply chain is large

CoViD has challenged Straight-Line Thinking Syndrome (SLTS).  Think of that as a modern-day Flat Earth Society.

For some unknown reason, supply chains are viewed as linear.  A business urban legend. There is a self-imposed alignment.  Like railroad tracks. Suppliers to production to customers. Or production to warehouses to stores.  Like a double play. Tinkers to Evers to Chance.  Sometimes there were simple assumptions too, such as constant production and/or demand.  These and similar ideas have held back the development of the upstream (sometimes called inbound) supply chain.

Upstream is where suppliers are and where the supply of supply chains begins.  To add to the problem, the upstream was bifurcated as to transportation and procurement.  (For too many, supply chain management is viewed and defined as and by its transportation/logistics elements and not by upstream/downstream or other relevant designations.) The two parts are also managed in separate groups in a company.  And both are measured primarily by costs.  

  

For some, this paper is an introduction to the upstream supply chain.  They think of SCM as downstream, fulfillment, warehouses, factories, store shelves full, and inventory--as if it all somehow magically happens.  This is a myopic view of supply chain management and an extension of linear bias. 

Another example of linear (SLTS) is blockchain and its application to supply chains.  A push is blockchain brings supply chain visibility.  In a way, this reduces the digital ledger to a form of track and trace.  But the same type of straight-line images is used, such as supplier to retailer to store.  The complexity of SCM is not understood.

Think of manufacturing bills of material (BOM) and the many parts, components, and assemblies that go into a product.  All the suppliers that make them.  All the countries they are located in.  Expand this to the many products that the company makes.

  

Purchase orders to suppliers are not the start and end of this either.  They stimulate suppliers to send purchase orders to their suppliers.  And so on it may go.  The complexity of supply chain management.  Supply chains within supply chains.  The upstream supply chain. And much of it unseen, especially with linear thinking.  All this is what should be recognized with a shift to onshoring/reshoring/nearshoring.

The complexity starts to show.  Now step back and see all these as to countries of origin. suppliers.  Supply chains within supply chains.  This multi-step view also applies to the finished goods that retailers order/buy.

What you are starting to see is not something linear. It is not a 3-step action, the double play. It looks more like a decision tree.  And that image does not show how suppliers and parts apply across products.

These processes involve time.  Now the intricacy with the addition of time comes into production, sales planning, and sales and operations planning (S&OP).  These unseen activities are challenges to these programs, including ERP systems.  

Think of the Mississippi River.  It is long, runs from Minnesota down through Louisiana, and ends in the Gulf of Mexico—the Mighty Mississippi.  But the river is not a single, linear entity.   It is fed by 7,000 streams, water basins, and smaller rivers.  These various bodies of water that flow runs through 31 states and 2 Canadian provinces.  All into one river. The Mississippi is how supply chains are—large, complex, non-linear, supply chains within supply chains.   

    

This is just the start. Now, look at an international shipment.  Factor in all the parties that are involved with one.  Depending on the origin and destination, there may be 15 participants, or more, involved with an international shipment.  The simple, few parties involved linearity is lost. And the gaps in the blockchain examples begin to appear.

Linearity misses the complexity and supply chains within supply chains.  It is sort of a business version of "pay no attention to that man behind the curtain".  Those that do not see the non-linearity also have difficulty understanding the scope and totality of supply chain management.  

And the convolution is not done. Now have two different groups involved here—supply chain management and procurement. (I will exclude situations where engineers are involved with ordering/buying.)  A cohesive upstream approach and opportunity are lost for the largest part of the supply chain.

It starts with nonlinearity which leads to the upstream supply chain which leads to supply chains within supply chains which confirms complexity.  The result is how strategic supply chain management is—end-to-end.  

Coronavirus validated the risk and criticality of supply chain management, especially the upstream segment.  Recognizing nonlinearity is important to properly identify supply chain risks and weak spots in resilience.  The post-pandemic need is to correct this and to build resilience and reduce risk.

Speaking of the pandemic, some discuss CoViD as a bullwhip effect on supply chains.  What it brought was greater.  Supply shocks. Demand shocks. Chaos up and down the supply chain—end to end.  Maybe it was something Dante missed—the tenth circle of hell.

In recognition of what is happening, here are some thoughts.  Supply chain management's crucial importance should be obvious to retailing because it is the operations arm of retail.  For e-commerce, end-to-end SCM drove the success of Amazon's order delivery velocity.  That speed created a new market and turned retail on its head.  The pandemic has validated the criticality of supply chain management in manufacturing and retail. 

There will be a post-pandemic supply chain management emerging, and it should organize as to downstream and upstream. The upstream with the blended activities of procurement and transportation/logistics should have responsibility for managing and positioning resources.  Manage by segments as to commonalities.  By products/parts. By supplier.  By country.  By risk,  By transport method.  Or by other meaningful criteria and subsets.

Supply chain management should be recognized and praised by Boards and C-suites, including elevating SCM to the C-level and the CEO position.  No activity is as complex, crosses so many parts of the company, and has the global reach--both upstream and downstream.

Bottom line--supply chain management is disruptive innovation. It is strategic, and when weaponized, defines businesses. Treat it that way.  

Email me at: tomc@ltdmgmt.com

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