Supply Chain is the New Electricity – You Cannot Run Business Without It

SUPPLY CHAIN IS THE NEW ELECTRICITY

Recently I did a small but quite interesting thought experiment with one of my sons.

We were discussing the invention of electricity and he asked me: “Dad, what would happen if there was no electricity?”

Since I actually had such an experience, I recounted to him my life in a remote village in Himalayas when my mother had taken a one-year assignment to teach economics to children in a school nearby.

I told my son that there was no internet, no computers, no telephones, no television, no radio and no light bulbs. Even more so, there was no electricity in that village at all. As a result, the whole village would get up at sunrise, go through their daily routines and were go to bed just after the sunset. People used kerosene lamps to light up for an hour or so after dark and only in case of necessity.

My son is only 8 years old, and grew up in Australia. Hence, obviously enough he found this life almost completely incomprehensible.

On my part, this conversation inspired me to think about life without supply chain management.

I have been lucky enough to have the opportunity of working closely with Dr. Wolfgang Partsch –  who is one of the co-inventors of supply chain management (SCM) in the early 80s. I have had a number of discussions with him about how the business life has changed compared to the life before SCM was invented.

No doubt, the division of labour was one of the biggest and most popular concepts which came out of the industrial revolution. The principle is that every job is divided into its constituent parts to the lowest possible level, so that each person can specialise in what he does best, this would increase the productivity of the overall system immensely. By the late 70s, the division of labour had totally taken over the business as well as governmental work.

Unfortunately, bureaucratic complications combined with the division of labour had created a world in which every department within any company was running as a small fiefdom.

Imagine that a purchasing clerk would issue a purchase order. Then he would let his boss know that he has issued the purchase order as per the boss’s instruction. Then his boss will countersign the purchase order and would inform his boss that such and such item has been purchased, who would then inform his boss, who would most likely be the head of purchasing.

The department head of purchasing would inform the head of manufacturing, who would inform his subordinate, assistant head of manufacturing, who would inform his subordinate, the factory manager, who would inform the manufacturing planner that the purchasing order had been issued.

There were 6 to 8 different links in this communication chain running from the purchasing clerk to the manufacturing planner or production planner. Each message would go up the chain in a department, right up to the department head, and then across to another department head who would filter the message down all the way to a person who would act on it. In such a world with these eight or more different links in the chain, the time difference by itself was enough for the message to lose its effectiveness.

Combine that timing issue with the possibility of a message getting garbled in a long chain of communication, due to the differences of intentions and possibility of misinterpretations of messages, suddenly you realize what a nightmare it would cause.

Not only that, the departmental heads were almost always the biggest bottlenecks in such a communication scheme where nothing would go up, down or sideways without a departmental head’s approval. Obviously, their capacity to process information was only limited by how much time they had.

Problems of the organization without supply chain management

Now before you think of this as a ludicrous, and imaginary situation – let me add that I encountered exactly this situation in an Island airlines where I had the opportunity to participate in a business transformation exercise a few years ago.

Many other organisations I have had the opportunity to serve exhibit at least some symptoms of the same malaise.

So, what would be the typical complications you could encounter if there was no SCM?

You would notice that some easy five-minute jobs could quite possibly take days to accomplish, for a simple reason of the lengthy communication chain required to get the cooperation. You would also see a lot of confusion, because of the possibility of the message getting misrepresented. You would see some coordination, but not a lot of it because of the nature and length of the communication chain.

You would see a lot of bureaucratic nonsense with people hoarding information and only giving it to their bosses or their subordinates in a very selective manner. In many cases, this information hoarding would be pointless and even harmful. The rationale behind the behaviour might simply be a cultural norm or an expectation in such a hierarchical organization.

You would also see too much command and control in this type of organization, for the simple reason that when everything has to pass through a departmental head, he becomes an ultimate arbiter of what information filters through and what does not.

You would also see that the departmental head would have to make all the decisions. Even the smallest scheduling decisions, or planning decisions, or execution decisions, which could have easily be made by people several layers lower than him/her, would need to be made by the departmental heads themselves, again for the same reasons.

You would also see such systems as very rigid with no adaptive capabilities to changing needs of the market place. If you notice any of these symptoms within your company, then there is bound to be a problem with how the supply chain functions in your company.

No matter whether you have somebody with a title of supply chain director or vice-president, your company does not act as an organization with an effective supply chain which cuts across the departmental silos.

As this is a very important subject, in another article I will talk about how supply chain helps to alleviate the silos mentality and integrate departments to act as one company.

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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.

  • Matheus says:

    Firstly, I appreciate to Mr. Sood on his way of thinking and taking inspiration from unusual places. How he learns from a child and applies this learning to create a new business concept. I like the approach to analyze and think about SCM same way. What organization did before SCM concept and What now doing after getting SCM. It provided the capability to understand value of SCM in organization. Sorry for my bad English.

  • Ting says:

    Supply chain management generally makes a business run smoother by cooperation across different functional departments in an extended enterprise environment that includes the company, its suppliers and distributors. The implementation of the supply chain is a major undertaken; however, the successful execution of supply chain management has the ability to create a sustainable competitive advantage over the competitors. The implementation of the supply chain involves strategic planning, system analysis, supply chain implementation, and supply chain coordination. Generally, SCM can be assisted by the use of software that allows companies to manage inventory, plan production, track sales, handle payments, and see where their shipments are. All of this information also can be used to communicate with other partners. The SCM software would also help to make demand forecasts as well.

  • Armon says:

    Supply Chain Management is efficient management of the end to end process starting from the design of the product, products or service to the time when it has been sold, consumed and finally gotten rid of by the customer. Effect of poor supply chain management is the lack of visibility of demand and supply information across the supply chain and as a result, the bullwhip effect takes place. A small blip in customer demands, therefore, amplifies down the supply chain due to different entities in supply that generate and revise individual forecasts and do not share critical demand information. Planning brings all areas of the business together, it joins the supply chain team up with the manufacturing or assembly plant it can be a significant area for developing inefficiencies costing more money in the long term, reducing your profitability.

  • Bob says:

    You have raised a very important question in this article as “So, what would be the typical complications you could encounter if there was no SCM?” The Main goal for any firm who wants to maintain an effective Supply Chain Management is to accurately match the supply with demand. If not done successfully and effectively, it can be the result of overproduction, one of many wastes mentioned in the previous article, which can cause a business to lose money and obscure the need for improvements. This is complicated by many uncertainties at various levels of the process. For instance, there are uncertainties within product and technology development as well as operations and manufacturing alongside the supply of the products. As a result of uncertainty within Supply Chain Management, the system creates more inefficiency. To further clarify this, an example may consist of the final demand for a specific product which cannot be predicted accurately, and so the firm either stock too little which results in stock-outs or produces too much, the firm has to salvage inventory through huge sales. This again is a waste in Inventory again mention within the previous article Lean Manufacturing which is one of many wastes that costs the business money.

  • Brick says:

    I think succeeding in supply chain management these days is tougher than ever, with the shift toward internet trading changing the old rules and requiring business owners to think on their feet. New challenges, however, correspond with new opportunities, including opportunities to dramatically improve supply chain processes.
    Adapting quickly to these can really give a business an edge. There are several considerations in traditional supply chain dynamics, each of which is being reshaped due to the ever-increasing influence of the internet. Consider sourcing here. It has never been easier to explore options and to research both their shipping methods and their reliability.
    This puts business executives in a stronger position to negotiate prices, but as competitors will be doing the same thing, businesses need to move fast to secure good deals.

  • Catherine says:

    Global markets are expanding beyond borders and re-defining the way demand and supplies are managed. Global companies are driven by markets across continents. To keep the cost of manufacturing down, they are forced to keep looking to set up production centers where the cost of raw materials and labor is cheap. Sourcing of raw materials and vendors to supply the right quality, quantity and at right price calls for dynamic procurement strategy spanning across countries. With this scenario you find companies procuring materials globally from various vendors to supply raw materials to their factories situated in different continents. The finished goods out of these different factory locations then pass through various chains of distribution network involving warehouses, exports to different countries or local markets, distributors, retailers and finally to the end customer.

  • Rosey says:

    Good article Vivek Sood. Supply chain management strategies are the critical backbone to business organizations today. Effective market coverage, availability of products at locations that hold the key to revenue recognition depends upon the effectiveness of supply chain management strategy rolled out. Very simply stated, when a product is introduced in the market and advertised, the entire market in the country and all the sales counters need to have the product where the customer can buy and take delivery. Any glitch in the product not being available at the right time can result in the drop in customer interest and demand which can be disastrous. Transportation network design and management assume importance to support sales and marketing strategy.

  • Diana says:

    Business executives are coming to the realization that supply chain management is directly tied to immediate customer experience. Today’s customers demand a seamless shopping experience as they bounce back and forth from online to offline shopping channels. The research on the mobile phone, compare online, buy in-store, and buy online. They expect consistency and transparency no matter where they shop with you. Customers demand options such as buy online, pick-up in-store. They want to return an item in-store that they bought online. If you don’t have inventory in-store, they want you to order it in-store for them and ship it to their house. Customers expect expedited shipping, free shipping, and accurate tracking updates. Customers are searching for this exceptional service. You can bet they will be loyal to the executives and suppliers that provide it.

  • Terra says:

    The advantages of SCM are enormous – increased coordination between suppliers, distributors and partners, enhanced customer relationship, and reduced cost of operation.
    For a company in medical services, like the one I work with, that distributes medical and surgical supplies to medical practitioners and home health care industry, a supply chain management system will coordinate with the manufacturers of the medical suppliers, the retailers, and the logistical department of major hospitals.
    By keeping tracking of the usage patterns, the supply chain management system will be able to forecast the demand of medical or surgical products by seasons, by regions and by customer types. This will save the inventory cost for the medical service company and major hospitals that order the medical supplies.

  • Smith says:

    Supply chain management in the global scenario, the finished goods inventory is held at many locations and distribution centers, managed by third parties. A lot of inventory would also be in the pipeline in transportation, besides the inventory with distributors and retail stocking points. Since any loss of inventory anywhere in the supply chain would result in loss of value, effective control of inventory and visibility of inventory gains importance as a key factor of Supply Chain Management function. Inventory control and inventory visibility are two very critical elements in any operations for these are the cost drivers and directly impact the bottom lines on the balance sheet. Inventory means to value and is an asset to the company. Every business has a standard for inventory turnaround that is optimum for the business. Inventory turnaround refers to the number of times the inventory is sold and replaced over a period of twelve months. The health of the inventory turn relates to the health of the business.

  • Wendy says:

    With so many processes coming together across different organizations, another supply chain trend is the need for flexible software. Older companies are stuck with legacy software that is separated from other company and supplier processes. In this case, it’s hard to automate information in real-time causing your processes to be slow and error-prone. It’s also difficult to update your processes or software as your business evolves. You might need to add and remove different sales channels, suppliers, or companies that you work with. But when you do, it can slow down the efficiency of your company because it adds complexity.

  • Branda says:

    It shouldn’t take years or months for new suppliers to get up and running with you in managing supply chains. Amazon can start working with a new supplier as quickly as one day. Your supply chain systems’ software and strategies should allow your company to be flexible. When companies are putting together their technology stacks, they’re making sure that their infrastructure is still flexible with change. So, your company can evolve as the retail landscape evolves. The more flexible your software is, the easier it is for you to make the quick decision making. You can quickly add suppliers, sales channels or remove any of them to bring change to your supply chain processes.

  • Berry says:

    In order to innovate supply chain processes, executives must try to follow the latest trends. Trending in supply chain management is the use of analytics. Companies need to use analytics every day to make better, informed decisions. Digital technology helps make the use of advanced analytics easier. Your company will have access and visibility into more useful data about the efficiency of your supply chain. These analytical insights can help automatically identify best practice improvements. It can also help predict what actions that your business needs to make. More companies will use advanced analytics to continually improve their supply chain processes.

  • Paul says:

    Businesses are recognizing that supply chain management is the backbone of their business. It’s key to creating the seamless customer experience that you strive to bring to your customers. Executives are making changes to their supply chain based on creating better customer engagement and experiences. These changes are aimed to be used as a competitive advantage. Suppliers that provide multiple delivery options, free and fast shipping, a seemingly endless aisle of inventory, and easy returns will gain more customers. Those shoppers will become repeat buyers or loyal customers. These merchants will have a leg up on their competition. It will be hard for others to compete against them who can’t offer the same level of service. These suppliers are using their supply chain advantages to win their market.

  • Zubi says:

    Quite informative and interesting article Vivek. Supply chain management and logistics are not taboo of your business. Advancements in technology, processes, methods, and strategy are helping make supply chain management easier for many businesses and business owners as the latest trends show that. Also, these supply chain trends demonstrate that your fulfillment processes can determine how well you can service your customers. Don’t wait to update your process and technology before you get too far behind your competition. Dynamic supply chain processes for multichannel selling environments isn’t easy though. Keep learning more about advanced order fulfillment practices, planning, and strategy.

  • Reel says:

    Supply chain management (SCM) is the active integration and coordination of all supply chain activities to provide you, the customer, with the best value. Providing you with the best value means providing you with a quality product at a reasonable price. Companies are able to provide customer value by coordinating the efforts of every activity involved in their supply chains internally as well as externally among supply chain members.
    In fact, everything you’ve ever purchased has been available to you because it was a part of a supply chain. A supply chain is the network of businesses and people that work together to move raw materials into finished goods and eventually to the end-user. The supply chain is directly or indirectly responsible for fulfilling your needs.

  • Alfared says:

    At some point in your life, someone has asked you this very important question: ‘What’s for dinner?’ There must be a million possible answers to that question. Pizza? Tacos? Lamb chops? No matter what your answer is, none of these foods will just appear out of nowhere. They have to first move from their original raw state into the packaged products you buy in the store. In other words, they have to go along a supply chain. Believe it or not, the supply chain starts with you. Let’s imagine, for instance, that you love shoes. Your desire to acquire shoes sets off a chain reaction. You either go to a shop or buy online to get the shoes you want. The retailer obtains the shoes from the distributor. The distributor gets the shoes from the manufacturer. The manufacturer gets the raw material from somewhere else. So all these processes, people and businesses are linked to each other. They are a part of the supply chain that starts with you. So the supply chain processes must be very well managed and streamlined.

  • Alice says:

    Supply change management is a highly-detailed system used by small and large organizations alike to get products to consumers, from obtaining raw materials, manufacturing and delivering the final product to the customer. A well-organized supply chain management system involves optimizing operations functionality to be fast and efficient. Supply chain management is not only a process served to generate a cost reduction in the budget or a mission to create greater operational efficiencies within an organization. While these are a part of the whole ecosystem, modern supply change management encompasses the strategic alignment of end-to-end business processes to realize market and economic value, as well as giving a firm the competitive advantage over their business rivals.

  • Caryl says:

    Supply chain management (SCM) is a very important part of any organization as it deals with the effective management of supply chain activities to ensure and maximize customer value and achieve a competitive advantage. Companies who use strategic SCM are able to function at their best capacity to provide and distribute their products and materials efficiently. Supply chain management is actually the management of supplying goods and products required by the end customer. In my opinion, it SCM to an organization that manages products that reach an end user. SCM also deals with the management of a network of business processes and activities such as raw material procurement, logistics, and manufacturing and distribution of finished goods. Ensuring that the right product is supplied to a customer at the right time and place, as well as with the right cost is the mission of a good SCM provider.

  • Glinda says:

    Such a good article. It was so exciting to read this article. All of us can enjoy a wide variety of products due to the advancement of technology and supply chains. But, even so, supply cannot be effective and deliver up to the expectancies of end consumers without a proper management system. The importance of supply chain management is larger than usually seen and estimated, as it makes sure that people get their favorite products when they need it, taking care of the elementary steps that begin with obtaining the raw matter and ending with taking the finished product to store shelves or client’s front door.

  • Marcus says:

    In recent times, the dawn of the digital age has brought wholesale transformation to the world of commerce. Only twenty years ago, these processes were arduous, labor-intensive, time-consuming and disorganized. It now may seem like ancient history, delivery times have gone from two weeks to a month down to a turnaround of hours in some cases. Automated systems and high-speed communication have paved the way for supply chain management and its increased demand. Today, more than ever before, supply chain management has become an integral part of the business and is essential to any company’s success and customer satisfaction. Supply chain management has the power to boost customer service, reduce operating costs and improve the financial standing of a company, but how does this work and how it can be improved? These questions need to be answered seriously.

  • Janna says:

    There are various reasons that SCM is important to retailers, executives and businesses alike. SCM can boost customer service, reduce operating costs, and improve a company’s financial position. Other benefits include reduced inventory costs, better information sharing between partners, improved process integration, and improved quality. One of the most important aspects of a business is its customer service. The correct product assortment and quantity needs to be delivered to the customer on time and efficiently in order to ensure they are satisfied. Customers also expect products to be serviced quickly if repairs or replacement products are requested or needed. SCM can help ensure that customers are satisfied at all times, which can improve your business’s bottom line.

  • William says:

    I think before implementing management strategies for a supply chain, you need to be aware that there’s the need for proper training, support, and sufficient planning. If you ignore these aspects, there are high chances for the implemented strategies to fail. Besides these, you need to be well aware that communication is very important as well, as you will need to interview every person involved in different stages of the supply chain management strategies. Understanding the importance of the supply chain and how the chain works in its details so that the best management strategy is composed of that particular supply chain.

  • Henna says:

    A very well managed supply chain lowers the costs, as it helps the business deliver the provided products in the fastest manner possible, instead of keeping them in transit for too long. A well-built supply chain will gain more clients for your business, pushing it one step further than your competition. It can make the provided products more affordable, by lowering the overall costs, but without making your company to lose the profit; this will be highly appreciated by your clients. Customer services and experiences will be much improved by the implementation of supply chain management strategies, as customers enjoy prompt and secure delivery of their favorite products. It will optimize the processes and make the supplies move faster along the chain, helping your business save time and money and improve its reputation in the eyes of end consumers.

  • Sam says:

    Supply chain management decreases overall supply chain costs since retailers and manufacturers often rely on supply chain managers to create networks that meet customer service goals at the most affordable rate. Retailers also require supply chains to quickly deliver expensive products in a timely manner in order to limit inventory holds longer than necessary. SCM further reduces production costs because manufacturers require supply chains to deliver materials to assembly plants to ensure proper material supply at all times. SCM increases profit leverage since supply chain managers help control and reduce the cost of the supply chain, which provides drastic increases in firm profits. Supply chain managers also decrease the use of plants, warehouses, and transportation vehicles within the chain so that fixed assets can be reduced. Lastly, SCM can increase your business’s cash flow given that customers can receive their products faster thanks to supply chain managers.

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