In simpler B2B days, supply chains only had to grapple with forecasting demand and then tweaking supply to meet it. Now volatility is end to end, and supply chain planning extends beyond order fulfillment to sustainability and resiliency. The good news: They’ve updated the operator’s manual.
The structural transformation of supply chains in the past decade has been nothing short of startling. Globalization and the internet have stretched supply networks across continents, to serve infinite addressable markets of anyone with a smartphone. The rise of e-commerce has revolutionized — and complicated — the way goods are distributed and delivered worldwide.
COVID-19 in some ways felt perfectly timed for e-commerce and a stay-at-home economy. But when it came to delivery of physical goods, from supplier’s supplier to customer’s customer, market distortions from COVID lockdowns and re-openings, as well as new variants, testing and vaccine challenges, and conflicting information, constantly threw supply and demand out of alignment.
While COVID has receded, new disruptions persist. Severe climate events keep coming with greater frequency; geopolitical and trade tensions intertwine; headline inflation, interest rates and recession fears drive wild demand swings, and changing regulations across many jurisdictions add cost and complexity.
The visibility, data processing, analytics and connectivity among partners required to keep a global or regional supply chain operating efficiently are today becoming less and less recognizable in relation to the traditional B2B model. It isn’t your dad’s Plan, Source, Make, Deliver anymore.
Everything, Everywhere, All at Once
“It’s no longer just ‘Build it and they’ll come,’ or ‘Just give me a forecast and I’ll make sure the supply is there,” says Peter Bolstorff, executive vice president for innovation and business intelligence with the Chicago-based non-profit Association for Supply Chain Management (ASCM). “Now there are constraints and disruptions on either side of the equation that need to be reconciled and orchestrated in the middle, so the question becomes how you orchestrate that bi-directionally.”
Bottom line: Demand is less predictable, and supply is less reliable, in a market dictated in real time by constantly evolving customer sentiment and headlines. Have a nice day herding cats.
Nor is supply chain management and planning just about order fulfillment. Customers and regulators are putting increasing pressure on companies to reduce carbon emissions and materials waste, and to monitor supply networks for metrics previously outside the scope of traditional commercial procurement or fulfillment activity, such as the use of forced labor or conflict minerals in the supply network.
“The other big change we’re seeing is around things like climate and circularity, and how we orchestrate the synchronicity of a regenerative supply chain,” Bolstorff adds. “And that’s not just supply chain. It’s product development, how we change materials. It’s transportation and finding the most efficient routing. It’s inventory and how do we not throw so much stuff away.”
This Year’s Model
ASCM maintains and updates the Supply Chain Operations Reference (SCOR) model developed in 1996 by management consulting firms PRTM and AMR Research, the latter now part of Gartner, as the definitive cross-industry standard diagnostic tool for developing strategy, managing performance and improving processes. SCOR lays out hierarchical supply chain processes and associated metrics as discrete building blocks which provide a template of commonly defined best practices.
The original model had four main process components: plan, source, make and deliver. By 2017 it was expanded to include return and enable, respectively addressing reverse logistics and the growing importance of business rules and intangibles like facilities and data capabilities, contracts, compliance and risk management.
Work began in 2019 on a SCOR Digital Standard (SCOR-DS) and a Digital Capabilities Model (DCM), to integrate digital technology capabilities with business practices, processes and metrics. The goal: to build a new map reflecting the supply chain’s evolution from a B2B “sequential chain” to a dynamic, omnichannel network.
Bolstorff, who began his career in the 1990s as a product manager and then a plant manager with 3M, helped oversee the three-year effort, which involved 70 subject matter experts worldwide and partners like Deloitte, KPMG and the Economist Intelligence Unit. It was originally an exercise to envision supply chain operating structure in 2030, and to update ASCM’s 1,000-page static guide as an interactive, publicly accessible online resource. In the process, 80% of the model changed.
What emerged in September 2022 was SCOR-DS, a model structured as a pair of infinity loops reflecting a multi-dimensional, continuous flow of data and communication: one horizontal but bidirectional around traditional and e-commerce fulfillment, from supplier’s supplier to customer’s customer; the other vertical, reflecting the dynamic network using digital technology to address non-traditional commercial activities. Both are linked by a more decentralized, less top-down orchestration approach. Post-COVID metrics now emphasize resiliency, profitability and sustainability.
“The idea was that too many things were happening all at the same time,” Bolstorff recalls. “The old linear way of thinking that you do this first, this second, this third, was born out of technology in the 1990s that could only do one thing at a time. That’s no longer the case.”
Consider, for example, the challenge of integrating a circularity strategy with order fulfillment. “It means evaluating every bill of material for every product and asking if each is reusable, if it can be re-purposed, if its life can be extended through maintenance,” he says. “That’s a really big deal, and it’s just one dimension of sustainability.”
Along similar lines, the “deliver” function was broken apart into “order” and “fulfillment” to reflect the range of omnichannel options through which a customer receives goods. “Make” became “transform” and then “enable” to reflect after-sale service, product support or lease/subscription revenue streams. “Source” had been limited in a basic fulfillment context, and is now expanded to include strategic and operational sourcing, direct and indirect procurement and returns. And all the above need to meet the resilience, economic and sustainability metrics.
Finally, SCOR-DS allows for different levels of digital transformation maturity within companies, offering three levels at which they can engage with the standards, depending on their specific capabilities and limitations.
A Need for Concurrent Planning
Reaction to SCOR-DS has been favorable overall, but some supply chain practitioners suggest more work is needed to integrate the upstream supply network, downstream channel partners and logistics service providers, in order to achieve true real-time, end-to-end visibility.
Allen Jacques began his supply chain career in the life sciences sector, first with medical equipment maker Baxter International and then with pharmaceuticals firm Pfizer. He was SCOR-certified under the original PRTM model and today, as a resident industry thought leader specializing in concurrent planning at Ottawa-based supply chain platform and software-as-a-service solutions developer and integrator at Kinaxis.
Jacques deals mainly with a SaaS platform, which uses artificial intelligence and machine learning-enabled analytics to drive client digital twins. Twins operate virtually alongside actual supply chains, replicating their operations and applying analytics to monitor activity and performance, spot failures or exceptions early, recommend performance improvements, and test potential market, supplier or operating scenarios against current business rules for planning purposes.
Concurrent planning relies on a robust, fully connected supply chain in which data generated by people, assets, systems and devices provide continuous location, status, condition, ETA and other information that is instantly shareable by eligible partners. Data collection and analytics are always on, not on-demand, and are accessible via customized dashboards, compressing the time frame for decision-making.
The benefit is that when everyone is connected, all are monitoring operations from a single trusted source, including exceptions and their impacts to the rest of the network. “Say I'm in a factory and a piece of equipment goes down,” Jacques explains. “When I put that into the system, immediately a country like Germany sees that they will have a stockout in two months as well as the duration, and Korea sees that they will go below safety stock. They can then collaborate with the supply planner, quickly run multiple simulations and see their impacts.” Each simulation, in turn, produces a dashboard showing revenue, cost, inventory, service level and other impacts for each client, with impacts ranked against various metrics to assist with collaborative decision-making in affected markets.
Jacques sees SCOR-DS as an important step forward in standardizing best practices. He and Bolstorff jointly hold speaking tours to highlight the use-case importance of benchmarking standards and concurrent planning.
The next logical step for SCOR-DS, he argues, must be end-to-end partner connectivity and collaboration, which is difficult to deliver but may be accelerated by coming regulation around sustainability.
Are Your Papers in Order?
As climate disasters intensify and occur more frequently, public sentiment is shifting strongly in favor of global efforts to limit greenhouse gas emissions, through assessment and reporting by companies and monitoring by governments.
The biggest hurdle in holding the Earth’s overall surface temperature at less than 1.5oC below pre-industrial levels by 2050 involves supply chains, which account for 80% or more of current emissions. The EU, Canada, Australia, U.S. and others are considering or preparing rules requiring assessment and reporting of end-to-end supply chain emissions, targeting “Scope 3” emissions from external suppliers and logistics providers.
Similar reporting issues are likely to surface around provenance of circularity, forced labor, sanctions compliance, food supply provenance and more. At the same time, shippers often have complex, at times adversarial relationships with suppliers, third-party logistics providers, carriers and other partners. Getting to collaboration isn’t easy.
“A big issue you have in pharma — but really you have it everywhere — is trust,” Jacques explains. “Anytime you want to collaborate with a supplier, everybody’s really careful about what information they share and how it can be used against them.” A supplier, for example, might offer a manufacturer excess capacity to meet a surge in demand, but then the manufacturer’s procurement division steps in to bargain down the price. Or a company about to publicly announce a price increase is undercut by distributors buying up as much product as they can before the effective date to preserve margins, causing inventory dislocation.
The larger point, Jacques says, is that negotiations toward collaboration among dozens or hundreds of Tier 1-3 suppliers and vendors, involving potentially sensitive commercial data, will likely require a delicate balancing of carrots and sticks. Standards and best practices would help.
Bolstorff says ASCM is working on metrics with a third-party reporting group that has built out industry models for oil and gas and for agriculture, from actual company data over time. But he urges caution because of greenwashing risks; the fact that different companies and groups have different data collection, reporting methodologies and ways of interpreting data results, and the absence in most cases of clear regulatory guidance to date.
Supply chains face a steep learning curve with digital transformation, especially as the bar is raised by consumer and regulatory pressures to think beyond fulfillment to non-business sustainability objectives. By setting attainable goals relevant to the markets they serve, carefully managing costs, and taking meaningful, demonstrable steps forward in matching technology implementation with process improvements, they can pursue growth and competitive advantage.
Having a North Star and a roadmap doesn’t hurt, but what really matters is taking the first step.
Resource Link: www.kinaxis.com
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