Analyst Lora Cecere of Supply Chain Insights recently condemned the sluggish pace of innovation, quipping in her blog, "what I see is big hat, and no cattle," and describing a circle of stagnation in the vendor and end user supply chain community.
In order for companies to break free from this cycle of stagnation, the established roles of technology, people and processes in supply chain operations need to be rethought. Traditionally, supply chain professionals have used software tools for decision support, part of a process that starts with planners manually creating a statistical forecast. However in that scenario, neither the tools nor the planners are engaged in the work for which they are best suited. Valuable human resources are squandered up front on complex, repetitive and time-consuming details, rather than being applied to high value-added activities like enriching forecasts with market intelligence.
By the same token, modern software tools are not capable of knowing what the 'intangibles' are that enrich the planning process, which can only come from human experience. These tools can be much more effective in the first step of forecasting, which involves assimilating and crunching large, complex data sets flowing into the business from multiple sources.
One way to imagine a more efficient way to manage a supply chain is by contrasting it with a modern control room for a large operation such as an oil refinery. At the heart of a control room is a vital piece of technology: a control system that operators use to monitor key performance indicators, generate alarms before mishaps have the chance to occur and translate high-level, off-line directives into specific actions. In an oil refinery's control room it would be impossible for operators to spend time gathering and analyzing the massive amounts of incoming data. Instead, the control systems' powerful and robust models translate this data into clear information for the team overseeing the operation.
The beauty of this control room model is that the operator is not "in the loop" but "on the loop". That is, the operator manages processes from a position of oversight. In contrast to the traditional supply chain approach, the operator is not trapped in an endless cycle of trying to assimilate incongruous data, troubleshooting, and making on-line adjustments. Another benefit of the control room approach is that it intrinsically prevents over-correction and process instability that can result from time lags between an operator's actions and the process's reactions.
Managing a modern supply chain is just as dynamic and complex an undertaking as managing a modern control room, but without the benefit of advanced process control. This explains why planning teams spend so much of their time engaged in fighting fires and limiting damage. Alarms usually sound after it's too late for planners to resolve problems in ways that are cost-effective and meet service targets. Forecasts are often inaccurate so inventory ends up in the wrong places and customers end up dissatisfied. When these problems build up over time, they can seriously damage companies' profit margins and reputations.
The 'Supply Chain Control Room'
Applying the principles of the modern control room to the supply chain essentially calls for changing the roles of people and technology. Therefore, in the supply chain control room, powerful statistical engines take the first pass at crunching large quantities of incoming demand data, distinguishing between and planning for both fast-moving and heterogeneous (lumpy and long-tail) demand. After this, planners and business managers take a low-touch approach that involves fine-tuning demand plans by applying their creativity combined with specialist functional and industry knowledge. Inventory optimization tools support the process of reconciling customer service policies with the right mix of inventory to generate profitable responses.
Recent advancements make the supply chain control room vision more achievable than ever before. Downstream data is more readily available. Demand sensing processes are maturing. Predictive and big data analytics techniques are emerging that make it easier to forecast demand and understand behavior patterns. Supply chain planning and execution have started to merge. Most significantly, some supply chain executives are coming around to the idea of letting technology handle most of the routine workload, with planners working off-line instead of fire-fighting.
Taking the Leap of Faith
As with all change, a shift to the next generation requires industry leaders to take a leap of faith. These leaders can take some comfort in the fact that our industrial history includes many examples of progress resulting from changing the roles of people and tools. For example, in the 1960s and 1970s machine tools migrated from manual to numerical (NC) to computer control (CNC). In the 1980s, manufacturing firms adopted statistical process control (SPC) techniques that dramatically improved quality and stability. More recently, airplanes now "fly by wire" rather than via direct manual mechanical control. All these innovations were initially hindered by people who feared change, but ultimately led to major improvements.
Some companies are already starting to make this leap of faith. One is global electronics distributor RS Components. Its head of supply chain planning, Andrew Lewis, recently described in a web seminar how he changed the roles of people and tools by automating the statistical forecast and inventory planning processes, freeing up planners to enrich and fine-tune using market intelligence and their own knowledge. With this approach he claims to have been able to make a $3m inventory reduction in a matter of days.
When you step "out of the loop" and take a critical look at your own supply chain planning, you should challenge your established ideas about the roles your technology and people should be playing. If it looks like your people have become servants to your tools, it's probably the right time to start exploring a new approach for the next-generation of supply chain planning and execution.
Keywords: supply chain solutions, supply chain systems, supply chain management IT, supply chain planning solutions