Doctor's Note (January): Challenges for the Modern Supply Chain Executive

In 75 percent of companies, the senior supply chain executive also oversees traditional supply chain functions like distribution, logistics, manufacturing, demand and supply planning, or purchasing. The entire supply chain, however, rarely falls within the scope of any one of these functions and so the supply chain executive has to work across organizations to make major changes. This is changing. In leading companies, the senior supply chain executive reports to the CEO, the COO or the CFO. As supply chains become more extended and costs become more volatile, this trend will continue because the supply chain organization will be asked to respond faster to changes in the environment. What are these challenges that the modern supply chain executive will have to meet?

The first is efficiency versus effectiveness. The traditional supply chain focus has been to reduce costs by streamlining operations and increasing efficiency. In the current environment, change and uncertainty are the norm. The supply chain requires constant reconfiguration to exploit opportunities for cost containment. An increase in fuel prices may trigger a different distribution policy; an increase in labor costs in formerly low cost regions may require a change in the buy/make balance.

The second is data visibility versus smart use of data. Most companies have their hands full just collecting and distributing supply chain data. The bad news is that this is about to get worse because much more data is being generated by automatic sensors and systems. Up to now, the focus has been on making this data visible in a form that people can digest it. In the future, the data volume will be so large that smart tools will be needed to process much of it. Take the example when production makes a bad lot of product. Should they try to make a new lot, or move on to the next production item? A simple expert system that looks at the available supply and demand picture and the cost implications could automatically make the right call perhaps 70 percent of the time. Decisions need to be escalated to a human being only in those cases that require judgment to evaluate risk.

The traditional supply chain approach for risk management is to position assets like inventory where they might be needed, or to maintain excess capacity to increase flexibility. In the modern supply chain, these will not be sufficient because there are simply too many sources of variability. Risk management has to be addressed through robust practices and software that will support these practices. Decision makers need to evaluate different scenarios constantly and evaluate them not just on cost, but on how flexible they allow the supply chain to be.

As the challenges of managing the supply chain increase, the role of the senior supply chain executive will need to change from simply delivering products cost effectively to re-engineering the supply chain constantly to maintain a competitive edge.