Early March, Industry Week published an article, titled "The Dead of the Supply Chain", arguing that the supply chain as it has traditionally been defined is no longer feasible. Gone are the days when supply chains were linear, static, in-country and tightly coupled to the brand owner or OEM's internal manufacturing.
Having spent time in studying the HP supply chain, I can fully agree with the statement. Indeed, supply chains such as ours have become global, outsourced and demand driven. Balancing demand and supply is critical to set-up and manage lean supply chains these days. In the article, Andrew Salzman describes five requirements that need to be addressed to achieve this:
- B2B Integration
- Business Process Management
- Exception and Event Management
- Business Intelligent
- Operations management
I believe he misses a major point. The approach he promotes is an operational approach, which only covers part of the needs. Yes, OEM's and Brand Owners need to be able to react quickly when something goes wrong, yes, data needs to be normalized and aggregated, and stakeholders need to be connected. However, that only provides information on what's happening now and how potential problems can be resolved. It does however not use the present situation to improve the future.
What we need is "closing the loop", in other words combine the information on what has and is happening to be able to improve operations both in real time and over the duration. What does this mean? Well, first, there is a need to integrate suppliers and channel partners alike. Yes, this requires a B to B integration, but more importantly, it can only be achieved if collaborative relationships are built between partners. Developing those is a whole discussion in its own right, and I will defer this one to another entry. Building the electronic data transfer mechanisms is reasonably easy; building the trustworthy relationships is more difficult. Data needs to be put in a common format and will be used, through an operational data store, for exception and event management. However, the time dimension is not taken into account here. Indeed, it is by understanding trends, what has happened prior to specific events etc. that the dynamics of the supply chain is understood. Business Intelligence can be used here. Consolidated data is stored in a data warehouse for extended periods of time, analysis tools can then be used to understand what is happening and why.
This understanding allows the development of modeling tools that mathematically simulate how the eco-system will behave. This is where simulation comes in and where the difference is. Using simulation allows the analysis of multiple scenario's and the identification of how the supply chain should be transformed to be capable to react better to fluctuation in demand, absorption of events, and result in major reductions in risks of running a global supply chain. It is surprising to see how little companies are using simulation these days. It has been proven extremely valuable over and over again, but many companies seem to be bogged down in operational management, forgetting the importance of planning things right. Yes, when a fire burns, it needs to be extinguished, but doesn't avoiding the fire make more sense? This is why we, at HP, are focusing so much on business intelligence and intelligent decision making. Over and over again it has proven beneficial.