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Building a Smarter Supply Chain

Ramesh Narasimhan argues that building a smarter supply chain is a strategic undertaking that implies a different role and set of responsibilities for supply chain executives

Building a smarter supply chain is a strategic undertaking; it implies a different role and set of responsibilities for supply chain executives. These executives must become strategic thinkers, collaborators and orchestrators who optimize complex networks of global capabilities.

Emerging economies are developing into real markets, not just places to procure low-cost parts and outsource manufacturing. Cheaper, faster, better is, and has been, the mantra among supply chain executives. A crisis in some far-flung country can now spread very quickly across the world economy, creating tremendous turbulence.

As our supply chains have become more intertwined, none of us is immune. India is no exception.

This is an extremely energizing prospect for supply chain leaders. Companies have a remarkable opportunity to use the instrumentation, interconnection and intelligence now within their grasp to create the robust, secure and sustainable supply chain businesses today demand. However, to deal effectively with risk and meet business objectives, we believe supply chains must become a lot smarter.

Perspective India

According to a global study released by IBM, even in tough economic conditions, over 50% of Indian mid-market business decision makers continue to innovate and grow through technology investments. The finding reflect that Indian companies cited supply chain management (SCM) as critical business priorities for improving business performance and efficiency, apart from information management and security management.

Today, globalization and growing supply chain interdependence have introduced a heightened level of volatility and vulnerability that is unlikely to subside. Uncertainty has become the norm. Supply chains, and the executives charged with managing them, are under severe pressure. As compliance mandates, suppliers and information flows multiply, supply chains are becoming more complex, costly and vulnerable. This new environment demands a different kind of supply chain, a much smarter one. Most mid-sized companies also recognize that a go-it-alone strategy may hinder their chances for success, and finding strategic IT partners who can collaborate with them to realize their vision is the key for success.

Key Trends

Supply chain of the future will be far more instrumented, intelligent and interconnected. Information that was previously created by people will increasingly be machine-generated—flowing out of sensors, RFID tags, meters, actuators, GPS and more. Inventory will count itself. Containers will detect their contents. Pallets will report in if they end up in the wrong place. The entire supply chain will be connected, not just customers, suppliers and IT systems in general, but also parts, products and other smart objects used to monitor the supply chain.

Extensive connectivity will enable worldwide networks of supply chains to plan and make decisions together. These supply chain decisions will also be much smarter. Advanced analytics and modeling will help decision makers evaluate alternatives against an incredibly complex and dynamic set of risks and constraints. Smarter systems will even make some decisions automatically, increasing responsiveness and limiting the need for human intervention. Some significant trends in the SCM include:

• Cost containment: Rapid, constant change is rocking this traditional area of strength and outstripping supply chain executives’ ability to adapt.
• Visibility: Flooded with more information than ever, supply chain executives still struggle to ‘see’ and act on the right information.
• Risk: CFOs are not the only senior executives urgently concerned about risk; risk management ranks remarkably high on the supply chain agenda as well.
• Customer intimacy: Despite demand-driven mantras, companies are better connected to their suppliers than their customers.
• Globalization: Contrary to initial rationale, globalization has proven to be more about revenue growth than cost savings.

Driving Efficiencies

Elimination of waste associated to getting ‘right’ drives efficiencies in the entire supply chain. It is all about having the right product at the right time at the right place at the right price.

• Right product: SCM organizations rely on more than needed inventory to ensure having the right product. However, products are almost always part of orders for multiple products. SCM organizations try to reach higher percentage service levels by increasing inventory levels on all products. Forecasting and demand Planning is essential to meeting SCM objectives at lower inventory costs.
• Right place: Miscoding of part numbers, quantities, shipping instructions, special handling all contribute to missing delivery of the products to the desired location. Corrections add to cost and failing delivery dates.
• Right time: Errors in order taking and lack of inventory generates back-orders and partial shipments. To compensate, SCM trading partners build larger than needed inventories generating incremental cost and lack of competitiveness to the entire supply chain.
• Right price: Inefficient SCM operations increases cost of products moving through the supply chain.

Visibility is also vital in supply chain operations. Providing visibility to supply chain partners (suppliers and customers) allows for the reduction of inefficiencies due to building up of lead times and inventories to compensate for uncertainties in supply/demand. IT provides trading partners with the visibility beyond their enterprise. IT facilitates these capabilities, but trading partners must also align business processes and build trust in supplying visibility to others.

Road Ahead

Supply chain operations hold the key to competitiveness. SCM is no longer an ‘internal’ discipline. It involves trading partners, suppliers, customers, and logistics providers to mention a few. It is also Global now so it has become multilingual, multicultural, multi-currency. Viewing supply chains as entities that involve all partners is the first step in grasping the enormous productivity benefits.

Tightly integrated supply chains make individual partners more reliable, cost effective and competitive. Building a smarter supply chain is a strategic undertaking; it implies a different role and set of responsibilities for supply chain executives. These executives must become strategic thinkers, collaborators and orchestrators who optimize complex networks of global capabilities.

The author is the Director, General Business, IBM India/South Asia