Companies today require more than ever from their supply chains. The increasing speed and global complexity of modern business are reshaping supply chains, across all industries and around the world.
Asking the question, “What is supply chain management?” can elicit a flood of digital-era attributes. It is digital (of course), automated, virtual, predictive, always-on, all-sensing, 3D-printing, robotic, driverless, optimized – all of which indicate the way forward, although these are still early days for most. And technology alone does not answer the question, since the importance of supply chain management is defined in terms of business objectives, external factors and customer demand.
So, what is supply chain management today? According to industry association MHI’s 2016 report on the state of the art, it is the mastery of “an integrated set of supply networks characterized by a continuous, high-velocity flow of information and analytics, creating predictive, actionable decisions that better serve the customer.”1
Let’s break that definition down.
Supply chains lengthen and grow in complexity
Supply chains are ever longer, virtual and omnichannel across physical and online elements. They increasingly involve international networks of third-party logistics (3PL) providers and the outsourcing of activities that are transactional, operational and repetitive. These could include anything from warehousing and transportation to order management, fulfillment, product labeling, packaging and assembly.
That’s where analytics come in, creating greater visibility – faster – across multiple and often global supply chain partners. Cloud computing can help ease data exchange among multiple business units within a company or with logistics and channel partners, while the Internet of Things (IoT) and related sensing technologies can collect vast amounts of data. Rapid advances in analytics are producing tools that enable managers to mine better insights and decision-making from this data.
Demand forecasting tools are among the analytics in widespread supply chain use today, with over half of recently surveyed executives employing them; optimization tools have experienced similar uptake.2 However, while four out of five companies in a recent survey said they have visibility beyond their own four walls to primary supply chain partners, most cannot readily view data to understand what impacts might be coming from their partners’ partners and other third parties farther out on the distribution network.3 Consider a simple example of the risk involved: the missing widget that holds up mission-critical product delivery.
Serving customers better is a clear mandate in both business-to-business (B2B) and business-to-consumer (B2C) markets. Over half of supply chain managers surveyed say customer demand is the biggest challenge – both for faster response times and lower total costs to manufacture and deliver the product (known as “delivered costs”).4 Another clear goal is continuously enhancing efficiency for global markets characterized by ever-tightening profit margins. All of which to say that supply chains must be increasingly agile and scalable.
The evolving importance of supply chain management
In the wake of a “lean” supply chain movement of several years, however, there are fewer buffers in distribution networks. At the same time, there are more dramatic variables to manage, whether from extreme weather, the uncertain future of oil prices, or the power of a social media review to spike product demand overnight.
Trends in business, cross-border regulation and corporate reputation also ratchet up the importance of supply chain management. Globally hypercompetitive markets expose companies to risks from new digital business models, such as 3D printing or sharing economy startups. Regulatory uncertainty is a factor throughout the supply chain, including dramatic changes underway in the world’s tax system. Sustainability and social responsibility are at this point established goals in leading supply chains – both for humanitarian and solid business reasons. Cybersecurity is a growing concern.
Supply chain management by the numbers
Above all, statistics can show what is supply chain management today. It is big: U.S. business logistics costs reached $1.48 trillion in 2015, according to the Council of Supply Chain Management Professionals.5 Global 3PL grew to $750.7 billion in 2014.6
When global supply chain news is bad, the disruption can be very bad. For example, when one of the world’s biggest shipping lines recently filed for bankruptcy protection, it reportedly left as much as $14 billion worth of cargo temporarily stranded at sea and drove rates on Asia-U.S. cargo up 40 to 50 percent across the board.7
But when things go well, the numbers can be very good. Companies with best-in-class supply chains achieve nearly 50 percent higher sales growth and 20 percent higher profitability than non-best-in-class companies, according to one management consulting firm.8 By another rough, bottom-line estimate, optimizing the supply chain can provide an order of magnitude increase in service levels or profit margins.9
Rapid innovation in business, technology and customer demand will continue to redefine what is supply chain management. Traditional, linear supply chains are a thing of the past. And while speed, complexity and other latter-day challenges pose relentless management pressure, supply chain leadership increasingly defines market leadership.