Leading companies in most every Standard Industrial Classification (SIC) industry code have used supply chain and sales and operations planning (S&OP) to create competitive advantage as measured by bottom-line finance metrics. Meanwhile, the remaining 95 percent of industry participants have cumulatively experienced static or worsening financial results.
Global GDP analysts have measured around $13tr of inventory buffers that have remained constant or risen over past decades. Generally, inventory is held as a buffer between the lead times for demand and supply. Despite the application of enterprise and supply-chain technology, supply and demand synchronization hasn’t improved over the past 20-plus years. But Google and Facebook can sell you antacid because they know what you had, or even want, to eat for lunch!
Supply-chain winners haven’t perfected technology — they just use simple tools that work better. They use their size to indemnify themselves from working capital and inventory exposure, and shift most of this risk to their upstream networks. The real question is why, after decades of talk and promises, do we not have solutions that provide benefits to the entire supply chain?
The Disconnect of Enablers
There is a tremendous mismatch in the selection of appropriate technologies to automate complex decentralized operations. Packaged software and cloud vendors use only centralized technology enablers to provide solutions to a decentralized business process.
But real success comes from mapping, modeling and embracing actual human workflows. A focus on human decision-making dramatically reduces the cycle times required to assemble, aggregate and match demand and supply. We have deployed highly decentralized and collaborative techniques — an approach we call “Synchronizing the Independent.” However, we have found that scaling these approaches beyond individual clients has been difficult, because it runs counter to the simplified architectures preferred by I.T. departments and packaged software providers. Over the past decade, these challenges have become magnified, as on-premise technology moves to the cloud and is confused with enhancing collaboration.
Blockchain: A New Enabler
What’s encouraging is a growing wave of awareness of blockchain and distributed ledger technology (DLT). Interest in blockchain appears to be providing an avenue for the true scaling of real-world collaboration, by embracing decentralized technology, encrypted security and peer-to-peer networking technology.
Blockchain is increasingly being discussed in the context of supply chain, but the focus is often on the replacement of existing applications such as tracking. In my view, this is not where blockchain can be of the most value to the supply chain. The greatest need, and highest return on investment, lies with processes that can’t be automated using centralized technology.
As an example of this disconnect, despite decades of new supply-chain technology, as much as 90 percent of all real planning and coordination is still done via spreadsheet and e-mail. In particular, the coordination of S&OP build plans outside of one department or company is almost always carried out in that manner.
Perhaps you have witnessed in your organization attempts to deploy connected planning technology and kill the spreadsheet, in favor of one real-time instance of advanced planning and scheduling. Has that worked, or has it just created more underground use of spreadsheets, e-mails, whiteboards and conference calls?
Repeated under different names, this mantra is a red light that confirms the need for inclusion of decentralized, distributed technology that supports supply-chain workflows, and begins to embed decision-making into the entire network. The growing underground of decentralized technology is an acknowledgment that human insight at the edge of the enterprise is critical to success. In many respects, these spreadsheets and e-mails are a decentralized technology that “synchronizes the independent” — just one that’s not scalable or optimal.
This and many other examples reflect the need for inclusion of a more human approach. Companies and individuals rarely work in real time, as they often must make requests and promises that require an analysis of self-interest. This is, in essence, the design of decentralized network technologies.
Companies today need to reduce cycle times from months to minutes and seconds, while preserving their independence and profits, and enabling value-add manufacturing. I.T. solutions that attempt to invalidate this immutable truth will always fail. After a decade of poor results, and billions of dollars worth of investment, it’s time for a new approach.
Putting Manufacturers Back in Control
Imagine S&OP becoming the equivalent technology to the supply chain that 3-D printing is to manufacturing. Instead of demand being fulfilled from inventory buffers, lead times for demand and supply can be held in a planning bill of material and master plan. Commitments can be fulfilled by rapidly pegging production up and down the network, instead of drawing on piles of built inventory. This can lead to breakthrough business models that enable value-add manufacturers to take the lead with customer demand, instead of allowing large distributors or retailers to dictate sales by SKU pricing. Instead, we can manage diverse, heterogeneous sources of material, and coordinate complex assemblies in manufacturing.
Potential for Value Creation
This is the first in a series of short articles for SupplyChainBrain to document why the blockchain wave provides an opportunity for scalable answers to the network-side supply-chain goal. Of a roughly $100tr global economy, 75 percent of processes involve the supply chain. Yet despite decades of hyped technology solutions, buffer inventories remain at between $13tr and $15tr.
It’s my hope to inspire significant innovation that lowers these buffers through true synchronization of resources across all players in a supply-chain network.
Jon Kirkegaard is president and CEO of DCRA Inc. and DCRA Technologies, a specialist in decentralized S&OP software and supply-chain execution data management.