A COMPREHENSIVE GUIDE TO SUPPLY CHAIN MANAGEMENT
The supply chain of the future creates a competitive advantage by transforming unforeseen challenges into wins. Let us examine the role of analytics and technology in this re-imagination of supply chain resilience.
Supply Chain 101: Driving Business Value through Resilient Systems
A COMPREHENSIVE GUIDE TO SUPPLY CHAIN MANAGEMENT
The supply chain of the future creates a competitive advantage by transforming unforeseen challenges into wins. Let us examine the role of analytics and technology in this re-imagination of supply chain resilience.
Supply Chain 101: Driving Business Value through Resilient Systems
Supply chains form the backbone of any successful business and are often the first to absorb and mitigate the impact of any crisis. This need for resilience is now greater than ever, as shown by the pandemic and the subsequent geopolitical change. The 24/7 expectations of the modern consumer also offer no room for a supply chain that falters.
Average annual losses per company due to disruptions.
Loss in annual EBITDA due to a single, prolonged production shock.
Of SMBs experienced 15% or more revenue loss due to supply chain delays.
Besides top teams and a robust strategy, the most sure-fire way for a business to enhance supply chain resilience is by deploying the best technology and shoring up its supply chain analytics capabilities. Technological innovations such as digital platforms, analytics, AI, and ML can help you harness data for insights to streamline daily operations, transform disruptions into opportunities, and set strategic direction.
A supply chain is a network that connects all the entities, processes, individuals, and information required to manufacture and deliver a finished product to the end consumer. It encompasses every stage involved, starting with sourcing raw materials and ending with the last mile that reaches the product to the consumer.
Before modern transportation, carrying goods across large distances was slow and expensive. Consequently, the earliest supply chains, such as the Silk Road and the Spice Route, only ferried rare and coveted items.
With advances in transportation, this changed. The automation of the Industrial Revolution that followed made scale feasible, contributing to the evolution of complex worldwide networks.
Modern supply chains are intricate webs facilitated by the latest developments in technology and transportation to produce and deliver the highest quality goods at the most optimal outlays. But with today's consumer expectations revolving around quick deliveries and proactive customer service, merely offering quality products isn't enough. The pressing need to improve the efficiency and responsiveness of the supply chain has never been greater, driving companies to obsessively hone their supply chain management (SCM) strategies.
The supply chain has a web of stakeholders within and outside the business. The complexity of this web has increased throughout history as companies find myriad ways to meet the needs of their customers and partners. However, the main ecosystem participants fall into the following broad categories.
Suppliers (From Raw Material Providers to Intermediate Goods)
Manufacturers (Balancing Production and Quality Control)
Distributors and Wholesalers
Retailers
Customers
To define how the stakeholders across a supply chain interact with each other, ecosystems have processes for every leg of the network. Keeping a constant eye on these supply chain management processes and continually improving them benefits every entity, from the supplier to the employees across business units to the customer.
Supply chain processes are interdependent, so a lack of optimization can lead to a cascading effect across the system. In addition, merely running processes well will not tap into the potential this pivotal function has to put your brand at the forefront. In 1982, British consultant Keith Oliver coined the term' supply chain management' for overseeing and improving all the activities in your supply chain to meet customer requirements.
According to Gartner and Tredence, supply chain management integrates, synchronizes, and orchestrates all physical, financial, and information flows that organizations and their value chain partners need to get the right products to the right place at the right time with cost-effectiveness and efficiency.
A robust supply chain management strategy in today's world is:
Businesses of various sizes and sectors grapple with different supply chain challenges within the same organization. This is because of the operational complexities of varied activities and processes. For instance, for a multinational laptop manufacturer, de-risking the sourcing of semiconductors presents a very different set of challenges to collaborating with e-commerce players for well-aligned stock availability during a bumper sale.
Meanwhile, a CPG firm has to devise different approaches for the supply chains of its mainstream and gourmet food lines.
As a part of their strategy, supply chain teams use different and at times, dynamic combinations of models to tackle these diverse supply chain problems across their business. Here are a few:
Researchers have shown that a set of paradigms improves supply chain performance.
L stands for lean, which is a supply chain management paradigm that focuses on doing more and more with less and less while getting closer to customer requirements. Lean practices include just-in-time inventory and total quality management.
A focuses on responding quickly and cost-effectively to change. Agile practices include centralized and collaborative planning and forecasting.
R is for resilience, which minimizes the impact of disruptions. Resilient practices include flexible sourcing and disaster recovery.
G stands for green and is focused on reducing environmental impact. Green practices include waste reduction and sustainable sourcing.
That which cannot be measured cannot be managed is an oft-repeated aphorism that has never lost its relevance. Organizations use Key Performance Indicators for all business dimensions and processes. Since the supply chain forms the backbone of most activities from manufacturing to sales, the criticality of defining and monitoring KPIs here is possibly the highest.
KPIs that underpin supply chain strategies are determined considering the industry, the business unit, the processes involved, and other variables. Both strategic and operational KPIs are important.
Cash-to-cash time cycle: This is a critical financial supply chain KPI. It measures how effectively a company manages its inventory and cash flow. A shorter cash-to-cash time cycle tells you that you are converting your investments into cash more quickly, which is desirable.
The cash-to-cash time cycle is arrived at by adding the days inventory outstanding (DIO), days sales outstanding (DSO), and deducting the days payable outstanding (DPO).
The cash-to-cash time cycle KPI can help supply chain managers find areas where they can increase efficiency. For example, if a company's DIO is high, it may need to cut inventory or improve forecasts. If a company has a high DSO, it may need to strengthen its collections procedure or give early payment discounts.
Supplier score: Since a chain is as strong as its weakest links, a business must track the performance of all its supply chain partners. Supplier score is one such inbound metric that is calculated as a weighted average of factors such as product quality, delivery performance, pricing, and sustainability practices.
Supply chain teams use it to track and improve supplier performance over time, as well as identify and manage supplier risk.
Perfect order rate: This KPI is a crucial customer-facing metric that measures the percentage of orders that are delivered to customers on time, in full, and without damage.
POR is calculated by dividing the number of perfect orders by the total number of orders shipped.
For many sectors, a POR is a strong indicator of the levels of customer satisfaction and brand perception and has to maintain a high benchmark.
Supply chains have become increasingly complex to fulfill evolving customer requirements over the years. Gartner argues that this has increased their surface area and, consequently, vulnerability to risk. Supply chain risks can be known and unknown and fall into four buckets: operational, strategic, financial, reliability, and social.
Gartner is now advising businesses to simplify their vast supply chain processes by various means, such as controlling the number of touchpoints per process. This translates into fewer third-party logistics providers, shipping modes, and lanes and greater distances between suppliers, factories, warehouses, and distribution centers. The goal is not extreme consolidation but finding the right surface area that works for your organization. This is called disruption-shaping, and an intelligent solution that provides an integrated view of your supply chain and dynamically maps your risk landscape will help.
Reference: Supply Chain Strategic | Gartner
As we have seen, supply chain teams have a wide arsenal of tools and techniques to hone their SCM strategy on the go. However, strategies need a rigorously proven underlying framework for effectiveness. Let us look at some industry-leading blueprints for successful supply chain improvement.
The SCOR model (Supply Chain Operations Reference model) formulated by the Association for Supply Chain Management (ASCM), the largest non-profit association for supply chain connecting companies around the world, identifies the processes of a supply chain. By breaking down a complex, non-linear network into these processes, businesses can better identify areas for improvement, build competitive strategies, and continuously optimize along any spoke or node of their supply chain.
Orchestrate sits at the top of the SCOR Processes hierarchy. It is the only SCOR process that has a Level 0. Orchestrate is at the Strategy level and informs and influences all levels below it.
After the Level-0 process, SCOR identifies six major Level-1 processes — Plan, Order, Source, Transform, Fulfill, and Return.
Orchestrate
The activities associated with the integration and enablement of supply chain strategies such as business rules, enterprise business planning; human resources; network design, technology, and more.
Plan
Developing road maps to operate the supply chain. Planning is executed for the Order, Source, Transform, Fulfill, and Return processes.
Order
Order describes the activities associated with customer purchasing products and services, including attributes such as locations, payment methods, pricing, fulfillment status, and any other order data.
Source
The activities associated with procuring, ordering, scheduling the ordering, delivery, receipt, and transfer of products and services.
Transform
The scheduling and creation of products, including production; assembly and disassembly; maintenance, repair and overhaul; and more.
Fulfill
Executing customer orders or services, including scheduling order delivery, picking, packing, shipping, installing, commissioning and invoicing.
Return
The reverse flow of goods and services, as well as any service components from a customer through the network.
The model has over 250 metrics organized in a hierarchical structure from organization level 1 to process level 2 to diagnostic level 3. The metrics are categorized into five performance attributes: reliability, responsiveness, agility, costs, and asset management efficiency. The first three attributes are customer-focused; the latter two are internally focused. A business can leverage this comprehensive model with its bouquet of metrics to decide areas of varying strategic priority and measure performance in those areas.
Developed in 1996, the SCOR model is constantly fine-tuned to account for the latest developments, with the SCOR 12.0 released in 2017 compatible with digitized supply chains.
In addition, the model is flexible and customizable and can be applied to multiple industries and situations. For each level-1 process, three or more differentiating level-2 processes exist. Each level-2 process contains level-3 process elements. These hierarchical relationships provide process classification.
When conducting a SCOR project, SCOR users may decide to move some lower-level processes into other process sections, but should be careful not to duplicate processes.
The SCOR model also provides the SCORmark benchmark. In today's hyper-competitive world, you must always know where your supply chain stands and what you need to fix to beat industry standards. SCORmark helps you do this. Based on the industry-leading SCOR Digital Standard, SCORmark leverages the historical population data of more than 1,500 organizations and 2,500 supply chains for a metrics-based assessment to identify key gap areas in your supply chain.
Reference: Supply Chain Strategic | Gartner
In 2019, acknowledging that technology had completely transformed business models, customer engagement, and supply chains, ASCM collaborated with Deloitte to create a new roadmap. This would help organizations transform their supply chains into non-linear digital networks that interfaced with the customer at far greater depth than before.
Aligned with the SCOR model but breaking down silos to create new capabilities that make digital transformation of supply chains easier, the Digital Capabilities Model (DCM) presents the following framework:
Synchronized planning: Casts a spotlight on the synchronization function of planning in the supply network
Intelligent supply: Focuses on building automation and intelligent capabilities into the sourcing and procurement function
Smart operations: Broadens the Make element of the SCOR model to include nontraditional operations, enhanced by the adoption of digital and cognitive technologies.
Dynamic fulfillment: Focuses on flexibility and adaptability in order fulfillment and better integrates a bidirectional capability, including the return aspect, into the supply network.
The DCM expands SCOR in two capabilities:
Digital development Includes elements for product design and development into the model.
Connected customer Focuses on gathering real-time customer feedback and using that information throughout the supply network.
As industry standards for supply chains evolve to ensure competitiveness in an unpredictable environment, the need for resilience is also becoming important. Late in 2022, more than 3 in 4 respondents in Deloitte's supply chain panel said resilience is a top priority for their company. This is not surprising. Supply chains demonstrated their resilience during the pandemic, but continued volatility is driving businesses to seek more effective methods to equip their supply chains to recover faster from disruptions.
A resilient supply chain bounces back fast from known and unknown disruptions, so customer needs are always met.
Deloitte says the modern, resilient supply chain is agile, predictive, and network-focused. There are four pillars -visibility, flexibility, collaboration, and control - that improve resilience. Twenty-three enablers for resilience are spread across the four pillars. Of these, cross-functional collaboration and digitization for transparency and automation are the top three enablers, along with dual and multi-sourcing.
Underpinning this structure is the foundation of talent, processes, data, and technology. There is no dispute that data and technology can facilitate collaboration, transparency, and automation and empower teams to oversee processes for greater control and resilience. However, the digital re-imagination of the supply chain is not without its challenges.
Of the digital supply chain roadmaps that do exist, only a few more than 3 in 10 are aligned under a single governance process and to common business goals. Gartner
Supply Chain Analytics: What it is & Why is it Important | Gartner
To overcome supply chain transformation challenges, Gartner recommends that you draw up a multiyear, integrated plan that addresses both short-term improvements and a strategic long-term vision. The plan should tackle redesigning the supply chain planning organization, centralizing the analytics team and building talent for the future. Finally, comprehensive oversight of the execution of the plan is key to maximize returns on your digital investments.
Of the technologies that help reinvent the supply chain for increased resilience, supply chain executives in a recent Gartner survey rated advanced analytics as the second most important emerging technology. This reinforces the growing role of supply chain analytics in harnessing the massive data volumes of modern enterprises and empowering teams with timely risk mitigation and optimization strategies for improved resilience.
In a Gartner supply chain survey, 79% of respondents said that they have developed training programs to help their internal users with advanced analytics adoption Gartner
Source: Gartner
Choosing the right basket of technologies is an important component of the supply chain transformation roadmap. While traditional technologies like ERP continue to hold relevance, greater digitalization across the ecosystem means more data and more competitors using this data to make better decisions. As organizations race to deliver value to demanding customers, how they build the data foundations to collect and streamline this data, the analytics techniques, and the supply chain analytics software they use to continuously derive insights from this data will set them apart.
For instance, at the sourcing stage of your supply chain, you are likely to have a dashboard that tells you just the exact status of your raw material shipments. If this dashboard also provides you with a short-term and six-month risk horizon drawing from live inputs such as reports on geopolitical developments and weather forecasts, you can ensure your products are on shelves around the year, maintaining and even grabbing a share of the customer loyalty pie.
The Benefits of Supply Chain Analytics:
Reference: IBM - Supply Chain Analytics
Predictive
Supply chain data analytics helps organizations minimize risks and disruptions. It helps understand the most likely outcome of an occurrence and its implications for the organization.
Prescriptive
Using optimization or embedded decision logic, prescriptive analytics in the supply chain helps prescribe or automate the best course of action. This can improve decisions on the optimal shipment plan for each retail location, the optimum time to introduce a product, and whether or not to build a facility.
Descriptive
Dashboards and reports are used to interpret any problems (if any). It frequently entails employing various statistical techniques to comb through, compile, and arrange data regarding supply chain operations.
Cognitive
Improves customer relationships and experiences using advanced supply chain analytics. Predictive analytics, artificial intelligence, and machine learning are, by definition, strongly reliant on the cognitive supply network to expedite, inform, and automate SCM activities. These computational and data-intensive technologies operate on a cloud-based architecture, providing businesses with the required scalability, storage, and processing capacity without spending money on on-premises hardware and personnel.
To build the multidimensional supply chain analytics strategy that will drive business success, Gartner tells supply chain leaders to
Supply chain analytics solutions usually include most of the following features:
Reference: TechTarget
One of the most effective technologies that will help you yoke together multiple supply chain analytics techniques for improved decision-making and agility, provide visibility over your entire supply chain, and help your teams collaborate and scale the analytics curve fast is the supply chain control tower.
In a 2020 report by IDC sponsored by IBM, Simon Ellis defined the "thinking" supply chain that is self-learning and intervention-free. He advises that current supply chains must undergo digital transformation to align with his five C's: connected, collaboration, cyberaware, cognitively enabled, and comprehensive, to become the "thinking" supply chains of the future. A supply chain control tower can form the crux of a transformation that delivers on the five C's.
According to Gartner, a supply chain control tower combines people, processes, data, organization, and technology. It is not a stand-alone SCM application but an integrated capability embedded in a broader SCM suite or tool, providing use-case-specific analytics, predictions, and suggestions across the supply chain. Control towers capture and use almost real-time operational data across the business ecosystem to enhance visibility and improve decision-making.
Supply chain control towers (SCCTs), similar to air traffic control towers (ACTs), provide a comprehensive view of the supply chain ecosystem, enabling organizations to make informed decisions and improve flow. In the future, SCCTs will offer an 'auto-pilot' mode like ACTs, allowing complex decisions to be made without human intervention as long as adequate, reliable data is available.
Corporations are moving from a node-level or siloed approach to digital control towers to leverage vast amounts of data across their supply chain and related functions. By extracting valuable insights using the right data sets and utilizing market intelligence, digital SCCTs underpinned by best-in-class supply chain tower software provide real-time visibility and drive optimal decisions. Unlike ACTs, SCCTs help teams experiment under statistical variability, helping build a virtuous loop of innovation.
of supply chain "masters" believe control tower capabilities will be critical to enable their customer experience-led growth
To deliver significant value, a supply chain control tower should have the following six technology capabilities, Gartner says:
However, many organizations struggle to implement a "gold-standard" control tower capable of real-time visibility, predictive alerting, and identifying bottlenecks. Instead, they end up opting for dashboards that showcase key KPIs important to various nodes in the supply chain.
Reference: Click here
Some of the ways to mitigate these challenges and move towards a successful implementation include –
To sum it up, supply chain resilience is paramount in the current landscape. Disruption shaping to decrease the surface area for risk is the way to go. Visibility, flexibility, collaboration and control are the four pillars that hold up resilience.
A supply chain control tower that provides a completely integrated live view of your supply chain and a full range of analytics capabilities to predict and mitigate risk is a vital technological solution for supply chain resilience.
To help set up and run your supply chain tower, you need to identify the ideal supply chain analytics partner. This long-standing relationship goes beyond designing and implementing a solution and has to take your supply chain further up the analytics maturity curve. The criteria that distinguish a good supply chain analytics partner from among many are:
In addition to these three criteria, it is also important to consider the supply chain analytics company's expertise in integrating analytics into a real-world environment. This includes understanding your IT systems, user rights, partner ecosystem, and more.
Tredence offers an intelligent supply chain control tower solution that orchestrates E2E visibility and autonomous planning. With rich experience in successfully transforming supply chains in multiple sectors, our team can help you reinvent your supply chain so you convert disruptions into growth.
Our supply chain analytics platform will integrate with your existing supply chain to unify siloed data to generate real-time, end-to-end insights and extend decision intelligence and business automation with AI-/ML-based supply chain analytics across the enterprise. The sales & operations planning platforms will help save planning time and costs by getting stakeholders from sales and merchandising teams on the same page as supply chain and operations teams. Smart transport planning will identify and quantify cost-saving opportunities for the supply network with smart visualizations of shipments.
Supply chain management is the process of optimizing and improving all activities in an organization's supply chain to meet customer requirements. It integrates physical, financial, and information flows to ensure the right products are delivered at the right time and cost-effectively. It also embeds experimentation and adaptability in the processes so they recover quickly in the face of known and unknown challenges. The dual focus on optimization and resilience allows organizations to not only streamline their supply chain operations but also effectively respond to unexpected disruptions such as natural disasters, supplier bankruptcies, or sudden shifts in customer demand. Organizations gain a competitive advantage in the market by continually evaluating and refining their supply chain strategies.
Sources: Keith Oliver, Gartner, Tredence
Supply Chain Resilience is becoming a top priority for businesses. A resilient supply chain is agile, predictive, and network-focused, with 23 enablers spread across four pillars: visibility, flexibility, collaboration, and control. Talent, processes, data, and technology are the foundation of this structure. A digital reimagining is the route to take. Challenges include alignment with the gamut of supply chain processes and calibrating data streams for increased throughput required by AI and analytics.
Gartner recommends a multiyear, integrated plan that addresses short-term improvements and a strategic long-term vision, including redesigning the supply chain planning organization, centralizing the supply chain analytics team, and building supply chain talent for the future. Advanced analytics is rated as the second most important emerging technology for reinventing the supply chain for increased resilience.
Sources: Deloitte, Gartner
Key Performance Indicators (KPIs) are extremely important in supply chain management. These key performance indicators (KPIs) help monitor the various dimensions of a company's supply chain, such as inventory, cash flow, and supplier risk against industry benchmarks, so teams can initiate improvement and risk mitigation proactively at all times.
The SCOR model, developed by the Association for Supply Chain Management (ASCM), is a supply chain operations reference model that is flexible and customizable and can be used to identify key gap areas in a supply chain in any industry. It breaks down a complex network into six major levels: Orchestrate, Plan, Order, Source, Transform, Fulfill, and Return. Orchestrate is the top level, influencing all levels below it. The model has over 250 metrics organized in a hierarchical structure, categorizing them into five performance attributes: reliability, responsiveness, agility, costs, and asset management efficiency.
The SCOR model also provides the SCORmark benchmark, which uses historical population data from over 1,500 organizations and 2,500 supply chains to identify key gaps in supply chain performance. The model is constantly fine-tuned to account for the latest developments and is compatible with digitized supply chains.
Sources: ASCM
In 2019, ASCM and Deloitte collaborated to create the Digital Capabilities Model (DCM) to help organizations oversee the transformation of their supply chains into non-linear digital networks for the new era. The DCM focuses on synchronized planning, intelligent supply, smart operations, and dynamic fulfillment in alignment with the SCOR model. It also expands the SCOR model by incorporating digital development elements for product design and the connected customer, focusing on real-time customer feedback.
Zooming in on risk, the complexity of supply chains has increased their vulnerability, Gartner says. In response, CSCOs are looking to scale their cybersecurity efforts. Gartner recommends that businesses simplify their processes, control the number of touchpoints, and find the right surface area through disruption-shaping. Cybersecurity should be a key consideration when choosing vendors and partners.
With the growing urgency for sustainability, EY recommends companies prioritize initiatives by determining how sustainable supply chains fit into their organizational goals. Companies should improve visibility and traceability, expand ROI measurement to include sustainability, and consider business-case drivers beyond cost savings. Trailblazers for supply chain sustainability focus on transparency, public opinions, and employee quality of life, and brand protection. Trailblazers are more likely to use sustainable supply chains to safeguard their corporate brand. Despite being less focused on cost savings, they have seen increased revenue and share price.
Sources: ASCM
Digital transformation of the supply chain is crucial for resilience and competitive advantage. Choosing the right technologies and analytics techniques ensures its success. Supply chain management has four types of analytics: predictive, prescriptive, descriptive, and cognitive. Predictive analytics helps organizations minimize risks and disruptions, while prescriptive analytics helps prescribe optimal actions. Descriptive analytics uses dashboards and reports to interpret problems and improve customer relationships. Cognitive analytics enhances customer experiences using cognitive supply networks.
To build a successful supply chain analytics strategy, supply chain leaders should harvest accurate data, build teams with technical and business skills, test various analytics tools, and invest in solutions supporting real-time data analytics. Solutions typically include data visualization, stream processing, social media integration, natural language processing, location intelligence, a digital twin of the supply chain, and graph databases.
Supply chain control towers (SCCTs) are a key, modern, analytics-driven solution for improving decision-making, agility, and collaboration in the supply chain. They combine people, processes, data, organization, and technology, providing a comprehensive view of the supply chain ecosystem. SCCTs capture and use almost real-time operational data across the business ecosystem, enhancing visibility and decision-making. To deliver significant value, a SCCT should have six technology capabilities: continuous intelligence, advanced analytics, impact analysis, scenario modeling, collaborative response, and artificial intelligence. However, many organizations struggle to implement a "gold-standard" control tower capable of real-time visibility, predictive alerting, and identifying bottlenecks. Organizations should treat SCCT implementation as a strategic initiative to mitigate challenges, prioritize integration over innovation, and engage with all functions.
Sources: Deloitte, Gartner, Tredence, TechTarget
Today, a resilient supply chain isn't just an asset – it's a necessity. By harnessing the power of digital tools, AI, and data analytics, companies can build this resilience, ensuring they stay ahead, meeting customer demands efficiently and effectively.
Whether you're a small business or a global conglomerate, the future of supply chain resilience is digital and data-driven – and it is here.
