The Mysteries of Supply Chains

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I have been asked this question a lot on Quora, as well in my board and other speeches. A lot of supply chain commentary is becoming too technical and mysterious. Supply Chain Software sellers have a vested interest in creating the mystique – similar to what McKinsey used to do about 20 years ago. But Supply Chain Management (SCM) need not be mysterious. Remember, if someone cannot explain it easily enough – they do not understand it well enough.

The purpose of one of my books – Unchain Your Corporation – was precisely this – to demystify the supply chains. This books is written for layperson, can be read in 2–3 hours, and had more than 200 stories and anecdotes to help the readers use complex concepts.

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Supply Chain Software sellers have a vested interest in creating the mystique – similar to what McKinsey used to do about 20 years ago. But Supply Chain Management (SCM) need not be mysterious. Remember, if someone cannot explain it easily enough – they do not understand it well enough.

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At its core, SCM is just about two things – integration, and optimisation.

Integration of various functions (purchasing, production, logistics, inventory management, finance, sales) within a company. And, Integration of of various companies that form a supply chain together to serve an end consumer.

Optimisation – is the art of getting the best results from the same inputs. You will be surprised to know that most GPS software do not even give you the optimum route even if they have real-time traffic information. The key to testing optimisation is by doing the same exercise manually and comparing against the results of the software. There are clearly degrees of Integration and Optimisation. Higher levels of Integration and/or Optimisation will lead to higher level of efficacy in supply chains.

See the figure below – that comes from one of my board speeches:

supply chain managment

If you supply chain consultants are not telling you these two simple truths, then all the talk of automation, big data software and driverless vehicles is a pipedream without a purpose.

And, if your Supply Chain MBA is not teaching you these two basics then you might have wasted 2 years and thousands of dollars.

Here is why… …Everything else in supply chain stands on those two foundations. Your supply chain relationships are part of integration effort, and automation is part of optimisation effort.

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Vivek Sood

I write about "The Supply Chain CEOs", "The 5-STAR Business Networks", and, how to "Unchain Your Corporation". In my work, I help create extraordinary corporate results using several 'unique' supply chain methodologies. Contact me for interesting, high impact projects, or, to get access to my IP for creating transformations using these methodologies.

  • John Cave says:

    I found this blog and decide to discuss more supply chain Mystery:
    Let’s start conversations by here- It is a topic that intends to solve Invoice Mystery.
    “The Supply Chain Detective: The Case of the Unpaid Invoices!
    The CEO called.
    I need you to go down to Mexico right away. They aren’t paying their invoices and suppliers are stopping shipments. Our manufacturing lines are going to stop. I need it fixed right away. Get those bills paid now.”

    What on earth was going on? Why didn’t the site just pay their bills? This shouldn’t be a big deal. And this was their problem, and responsibility, not mine. But as with any crisis situation, it’s all hands on deck to get the problem fixed.

    Little did I realize that while on the surface this seemed like a simple problem, and solution (ie. just pay the darn bills), the reality would prove to be much more complicated. This would be a case for a Supply Chain Detective!”
    (refer more details: https://bit.ly/2QhhWF4)

    I invite you to discuss over it.

  • Bella says:

    Hey, Mr. Sood after reading your blog about supply chain mystery I recalled one my good memory that I would like to share it with you. I recently had a chance to interview a supply chain director from a mid-sized hospital in New York state, that was very insightful in helping me to think about the challenge around inventory management. The supply chain officer described the approach that was needed to think about standardization, but also about a concept called “UTILIZATION”, a term I had never encountered before in my 30 years in supply chain management. What I learned helped me to understand why healthcare supply chains are in such a pickle today. This gentleman told me the story of how they evolved to begin measuring utilization as a core component of flow in their system.

    “The concept of utilization involves measuring whether the items scheduled to be used in a patient procedure were actually used and whether those items were invoiced correctly to the patient in the revenue cycle. This is where a lot of errors occur – and the waste in such cases can easily be 30-40% of the stuff we buy that we never get paid for and which goes to waste!”

  • Robort says:

    Glad to read about two important different points about supply chain which are described above. But I think it’s wast area to understand for SC in a right way. managers should try to understand the terminology of (purchasing, production, logistics, inventory management, finance, sales).

    • Mahim Joshi says:

      The ability to meet customer requirements, for everything from coffee beans to Crocs, is built upon the expectation that everything is done correctly in the supply chain. And that means doing it right the first time – no mulligans, no mistakes are allowed. In the quest to provide quality service and satisfy customers, world-class companies along the supply chain are guided by the Seven Rights of Fulfillment.

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