SCM30: What Are the 3 Greatest Advancements in Supply Chain Management?
Welcome to the second blog post in the SCM30 series. Throughout 2012, Kinaxis will be exploring the past 30 years—as well as the future—of supply chain management.
I have always suffered from “a kid in a candy store” syndrome, and when Lauren Bossers asked me to write about the three greatest advancement in Supply Chain Management over the past 30 years, I was “over the moon.” But in truth, I turn quickly into “a deer in the headlights.” Paralyzed more by choice than by fear in this case. But I guess I am really paralyzed by the fear of making the wrong choice given the wide range of choice. How does one choose just three from a long list, and aren’t many of them interlinked? And If I choose this one rather than that one, what is Lora going to think of me? Also, it is just easier to identify the ones that have failed, because that is a fact. But to choose the three greatest advancements is to predict longevity too, not just past impact. And we all know how well we can forecast demand, don’t we? So in the end, I decided to make this personal—to be less analytical—which is tough for me. So let me take a crack at defining the three greatest advancements of supply chain management, and all of you armchair experts out there are welcome to agree, disagree, or just comment. We still have a long way to go and any and all insights are welcomed.
1: Defining the term
So I started this blog with a bunch of idioms that are a fair, but incomplete, reflection of me. We all need and use acronyms and idioms to encapsulate and convey ideas in in a concise form, but lose something by bounding it tightly in a term. And so it goes with supply chain management. When I first came across the term I was working in Germany, which I am embarrassed to say was only 20 years ago, not 30 years ago, which is when the term SCM was coined. But even at that time there was confusion about the term SCM because the Germans used, and continue to use the term “Logistik,” which is very different from the North American term “logistics,” used to describe the transportation of materials between locations. In fact, a quick search of Wikipedia will show that “logistics” dates back to Roman times:
Logistics is considered to have originated in the military’s need to supply themselves with arms, ammunition and rations as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, military officers with the title Logistikas were responsible for financial and supply distribution matters.
Searching for supply chain management in Wikipedia comes up with a host of similar yet different definitions, not that dissimilar to logistics. But the whole point of having a name or term to describe something is that now people can study it, debate it, enhance it. Without the term there is no cohesion and therefore little progress. Let’s assume for now that we can locate the origins of SCM in 1982, 30 years ago. What is interesting is that from an academic perspective, little research was published until much later, with only five publications in 1997, 15 years after the term SCM was coined.
Yet the term SCM itself has broad meaning. I have to admit that when I first heard the term “supply chain management,” my attention was drawn to the supply aspect, which limits its applicability to materials management and inbound logistics. But clearly it wasn’t only me that had a limited understanding of the term. Many still do think of supply chain management being limited to the inbound supply of materials.
This confusion of definition can be seen in many articles published by the analysts and is exemplified by AMR Research’s (now part of Gartner) attempts to popularize the term value chain management and the concept of a demand-driven value network (DDVN). But as I pointed out at the start of this blog, a term is very important shorthand for communicating ideas and concepts. And everyone at AMR Research, and now Gartner, needs to be congratulated for promoting the broader concept of value chain management. Even if the term is not gaining much traction, the central themes of demand translation and profitable response are essential in being able to conceptualize how a company’s operations can best be orchestrated to meet their financial goals.
I’d also like to point everyone to a great piece by Lora Cecere on the maturation of supply chain management as a recognized profession and course of study. Lora’s view is that the third generation of practitioners is now in university and will be hitting the streets soon. I look forward to their contribution. They will be the first that will have been born at a time when nearly every household in the Western world had a computer in it. They are the generation that will have learned to use the computer much as they would a telephone or TV. I expect big things from them.
2: Technology to support the process
As I mentioned above, I’m a slow starter, so I’m going to put myself in the second generation of supply chain professionals despite falling into the first generation by Lora’s definition. At the time I came across the term supply chain management I was working for a management consulting company and doing a lot of what I now term supply chain re-engineering, while others call it supply chain network design. To be honest, I don’t think that at the time we had a term for what we did, but it was the aggregate level of analysis of a company’s operations that tries to determine where best to locate facilities and to flow materials through the network based upon historical demand patterns and anticipated changes in the demand patterns. We never did anything as mundane as actually trying to operate the supply chain we had designed. J It was during one of these studies in 1995 that I came across i2 Technologies, which was still a relatively small company at the time, and had only just opened offices in Europe. At the time they had a single product called Factory Planner, which, in itself, is indicative of the level of maturity of the industry. I leapt at the opportunity to join i2 and had over 10 great years working for them at a time when technology was just emerging to support the emerging practice of supply chain management.
Once I joined i2, I came across the likes of Manugistics, Think Systems, Aspen Tech, Numetrics, and a host of others, which have now come and gone. All of these companies tried to add science to how companies were purchasing, manufacturing, and distributing product in order to satisfy customer demand. Of course, before this there had been a lot of work done by Jay Forrester and others, and there was quite a lot of academic study of things like operations research, which were the basis of much of the software that was developed to address the needs of supply chain management. But this was the first time technology had been developed specifically to satisfy the emerging practice of supply chain management. We needed to get beyond the abacuses and spreadsheets being used at the time.
Core to the concept behind the establishment of i2 Technologies was Sanjiv Sidhu’s observation that even the smartest people can juggle no more than nine variables when making decisions. Instead he proposed a design for computer software based on artificial intelligence and advanced simulation techniques, most of which were rooted in Operations Research techniques and Eli Goldratt’s Theory of Constraints. Of course, as I mention above, it wasn’t only i2 that was developing products to satisfy the supply chain management needs. Once SAP and Oracle saw that there was a large market for supply chain management software, and that MRP alone would not satisfy the requirements, they developed the respective Advanced Planning and Optimization (APO) suite and eBusiness Suite (EBS).
There are two major drawbacks, which we are still experiencing today, that resulted from this period. The first is that the software products were developed to satisfy specific supply chain management sub-processes, such as demand planning/forecasting in isolation and with no thought being given to how the different processes are interconnected. The second is that it was assumed that an optimization algorithm could arrive at a better answer than a human being, ignoring the fact that the model itself is an approximation and is based upon assumptions that usually have a fairly short half-life.
Nevertheless, we are considerably further along in the development of supply chain management as a profession than if these companies had not emerged to fill this gap.
3: Supply Chain Management in the C-Suite
I am a technologist—a geek at heart—which is why I studied for a long time and why I have worked mostly for software companies or management consultancies. But I recognize the tremendous importance and value of the people who actually have to put this stuff into practice. It is much easier to analyze than to do, so to all those “doers” out there, thank you. Until recently supply chain management, if such a department even existed, would report into all sorts of functions, often procurement or manufacturing, reflecting again the emphasis on the term supply. Or even into IT, reflecting the perception that supply chain management was mostly technology rather than process.
A couple of years ago, Gartner began using the term “Chief Supply Chain Officer” to describe the emergence of the secondgeneration of supply chain practitioners in the executive ranks of organization. In a blog originally dating from 2008 and titled “Chief Supply Chain Officers are still rising, but what is the job?”, Kevin O’Marah comments that:
On one hand, supply chain looks ready to usurp all kinds of traditional functions from purchasing through shipping; but on the other, the very breadth of this span of control means that most real VPs of supply chain have hard line authority over only a portion of the process and must influence, via dotted lines, the traditional owners of manufacturing or forecasting.
The most obvious example of the emergence of this operations-savvy senior executive is Tim Cook as the CEO of Apple. His official bio, which I have copied below, emphasizes his deep supply chain experience. And what better exemplar can we get that a geeky function such as supply chain has produced the CEO of the hippest company in the world epitomized by the black mock turtleneck and other non-conformist characteristics of Steve Jobs.
Before being named CEO in August 2011, Tim was Apple’s Chief Operating Officer and was responsible for all of the company’s worldwide sales and operations, including end-to-end management of Apple’s supply chain, sales activities, and service and support in all markets and countries. He also headed Apple’s Macintosh division and played a key role in the continued development of strategic reseller and supplier relationships, ensuring flexibility in response to an increasingly demanding marketplace.
Prior to joining Apple, Tim was vice president of Corporate Materials for Compaq and was responsible for procuring and managing all of Compaq’s product inventory. Previous to his work at Compaq, Tim was the chief operating officer of the Reseller Division at Intelligent Electronics.
Tim also spent 12 years with IBM, most recently as director of North American Fulfillment where he led manufacturing and distribution functions for IBM’s Personal Computer Company in North and Latin America.
Tim earned an M.B.A. from Duke University, where he was a Fuqua Scholar, and a Bachelor of Science degree in Industrial Engineering from Auburn University.
But back to Kevin O’Marah’s point about the supply chain function only influencing rather than commanding the traditional functions of manufacturing and forecasting. As recently as two weeks ago I met with a high-tech/electronics company in Silicon Valley in which this is still the case. The supply chain management team is a central function, reporting into the CIO, that can advise but not act. It has little budget and needs to bring a number of budget owners together in order to reach a consensus on how to proceed and motivate each function to contribute toward a budget to purchase and implement supply chain software. We all know how long that takes and how seldom a consensus can be reached. Each head wants to maximize their operational effectiveness of their functional in isolation.
I can only contrast that with another company I have been engaged with lately that has an SVP of Supply Chain that reports directly to the CEO and has direct operational responsibility over the business of getting product into the hands of the customer. Often the people who rise to these positions have a strong analytical background and have worked in many of the functions that make supply chain management. In other words, they understand the interconnectedness of the sub-processes and how optimizing one in isolation may well mean that the overall process is less effective. I believe the emergence of these people at more senior levels is a key reason for the resurgent interest in sales and operations planning (S&OP) over the past 3-5 years. They are laser focused on the cross-functional effectiveness of operations both from a financial and an operational perspective. While S&OP is the mechanism by which they are implementing cross-functional processes, many are interested in supply chain control towers as an enabling technology to support not only the S&OP process but also the translation of that plan into executional effectiveness, what Gartner and Lora Cecere call “demand translation.”
There were so many items on my list, but I had to come up with three, and I chose the definition of the term supply chain management, followed by technology to support the sub-processes, and the emergence of people in the executive suite who understand the importance of the supply chain to the financial performance of the company. I am sure there are many other options out there and encourage you to either comment directly or email me with your suggestions.Google+