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
Check my profile at: https://www.linkedin.com/in/tomcraig1/
