Why The Supply Chain Is Dead

Why The Supply Chain Is Dead

We really should stop using the term “supply chain.”

“Supply” gives the impression that one company makes something, say a part, and sends it to another, where it sits, like bolts in a bin, waiting, along with many other discreet pieces, to be made into something greater.

Sounds old, doesn’t it?

These days, manufacturers and suppliers are often on the same shop floor, building things together that they probably designed together. Or suppliers are taking over entire chunks of the design and manufacturing processes. They are less suppliers than collaborators.

And “chain?” Jeez, where do I begin?

Chain implies a plodding, step-by-step process where discreet elements must be tied together one by one, without anything happening in parallel. Can you imagine a company today working like that?

The New Way to Think About This

There are many terms out there that could be subbed in for supply chain, but the one that sounds least buzzwordy to me is “network.” This is what it’s really all about these days. Without relying on a network of partners practically joined at the hip, few companies could survive and prosper these days.

Take Harry and David, a maker and seller of mail-order gift baskets. It is justifiably proud about the fact that many of its food items are still grown on the same Oregon farm where the company began almost 100 years ago. However, I discovered at a recent SAP Supply Chain Summit (I know, I know—we need a name change—but the next, let’s just call it summit, is coming up in July) that the company does 85% of its annual business in roughly a three-and-a-half week period in November and December. You don’t ship 450,000 packages per day—and do it globally—with a chain.

So how do we start getting ourselves into a network mindset? Here are some tips I learned at the conference:

  • Collaboration requires a new way. I heard companies at the summit say that they are looking forward to the end of the days when 70-80% of their IT budgets are spent supporting (among other things) expensive, one-off connections with suppliers, partners and customers. If you are still wondering what cloud computing will ever be good for, this is it: a faster way to collaborate with your network.
  • Manage by information, not exception. One of the reasons that supply chain worked for so long is that they were so slow that companies could afford to wait until something went wrong and fix it without absorbing too much damage. Not so anymore. Companies need all the information about everything they are doing—preferably in real-time—if they are to avoid being outed on Twitter or on the 24-hour business news channels. “We need to think in terms of a GPS for supply chain so we can manage by information rather than exception,” said Hans Thalbauer, SVP of Supply Chain Management for SAP.
  • See beyond the next step. Supply chain nerds can tell you about the “bullwhip effect,” in which one link in the chain sees a shift in demand—that may or may not be real—and sends it cascading down the line, causing gluts or shortages in inventory. Networks let you see beyond the next node to make more realistic judgments about what’s really happening.
  • Markets are now networks. Supply chains usually make stuff and sell it—or try to—to a market that either accepts it or doesn’t. Today, things have gotten a lot more complex than that. Markets have become expressive, emotive. The real-time graphs of social media activity look remarkably like EKGs—in other words, living and breathing beings. Companies have to stop thinking about markets as just demographics.

What do you think we should call supply chains now?

This post previously appeared on SAP Business Trends.