The goal of supply chain management can be stated simply: Deliver perfect orders of profitable products. Sounds easy, right?
Actually, that's a tall order made more difficult if you’re depending on old-school supply chain technology in this data-driven world. A modern supply chain must support the continuous development of products that are differentiated, high quality, and low cost, and deliver them predictably, flexibly, and efficiently every time. If your supply chain does not do all that, then your business is going to fall behind. Perhaps it already has.
Small wonder that Oracle's Modern Supply Chain Experience conference (January 25 to 27 in San Jose, California) is filling up fast.
“Supply chain has probably changed more in the last 30 years than almost any other aspect of business,” says Jon Chorley, Oracle chief sustainability officer and group vice president, supply chain product strategy and PLM. “Twenty or 30 years ago, no one was outsourcing to China. Now, it’s not even China anymore—it’s Vietnam or Cambodia. How do you have a responsive supply chain when it takes you two to four weeks to ship the goods to a customer? It requires enormously sophisticated planning and modern tools to meet this demand.”
Yet many companies are still using outdated supply chain and ERP (enterprise resource planning) applications and processes that were designed with an inside-out focus—designed around how a company (rather than its partners and customers) operates, Chorley says.
Today, that focus needs to be outside-in.
“You may be working with your supplier’s supplier, or selling through a reseller to an end customer, yet all of this is your brand, your supply chain, and so you have to understand what’s going on end to end,” Chorley explains.
A December 2015 report by the Consumer Goods Forum and Capgemini that looked specifically at consumer products and the retail sector concluded that “traditional value chains are no longer sufficient to keep pace.”
The value chain should no longer be thought of as a linear journey of products and information from supplier to manufacturer to retailer to consumer. Instead, the report maintains, the value chain will “increasingly organize itself as networks around consumers, offering a multiplicity of channels and interfaces across all value-add processes and business entities” and responding to customer demands, the report concluded.
What CEOs Want from their Supply Chain
A survey of executives at companies participating in McKinsey & Co.’s Digital Manufacturing and Design Innovation Institute finds that many are feeling like they’re behind the eight ball. “While 80% of the respondents consider digital manufacturing and design to be a critical driver of competitiveness, only 13% rate their organizations’ digital capability as ‘high,’” the survey states.
Against that backdrop, Oracle’s Chorley says CEOs are looking to supply chain executives to tackle a number of critical issues:
- Improve return on innovation spending. While companies manage downstream processes pretty effectively—what parts go into making a laptop, for example, and technical issues around the structure of the product—the questions of what kind of laptop to build, how the current product line should evolve, which products should be enhanced, and which should be killed are often decided with a wing and a prayer, Chorley says. “The CEO may have articulated a great strategy but often doesn’t have a clear view of how product innovation is going to translate that strategy into increased revenue, market growth, or diversification,” he says.
“The key is to improve visibility to the process: Collect and evaluate product ideas, pick the great ones, accelerate the conceptual design process, and then balance your overall product portfolio. Up till now this has been very poorly served from a technology perspective,” Chorley says—which is why Oracle introduced Oracle Innovation Management Cloud.
- Maintain a flexible approach to sourcing, production, and distribution. The opportunity and cost equations shift constantly. Manufacturers need to exploit the new channels, have flexible sourcing and a sophisticated logistics network to support those channels effectively, be able to integrate and leverage acquisitions, and have systems that permit new business models such as service-based product offerings. “One of the biggest inhibitors to flexibility is the IT systems that support the supply chain,” Chorley says. “And complex, unintegrated supply chain applications make it very difficult to take advantage of new opportunities.”
- Attract and retain productive employees. Decades-old supply chain applications don’t provide the kind of analytics that workers need to make smart decisions. “Expectations of new employees are shaped by social networks and consumer applications, so they can experience a profound culture shock when faced with a typical legacy enterprise application,” Chorley says. “The result is dissatisfaction and inefficiency. The opportunity to gain productivity through a modern, analytics-driven user experience is enormous.”
Meantime, companies must match modern supply chain management applications with modern talent management, according to Deloitte’s Supply Chain Talent of the Future report. With baby boomers retiring in a huge wave over the next decade, recruitment is a bigger challenge than retention. The best talent will go to the companies that recognize this challenge.
Critical Issues to Consider
You can’t deliver on these CEO demands with technology designed for how business worked 20 years ago. For the many companies looking to modernize various components of their supply chain, Chorley offers the following tips:
- Define your desired endpoint, then craft the path that moves you toward it. “Up till now, the cloud has been used to drive departmental-driven initiatives, largely because IT couldn’t keep up,” he says. “The result was short-term gains that resulted in complexity and lack of integration in the long run. The cloud must be embraced as an enterprise initiative, and a critical part of that overall design is how supply chain ties in with other systems,” such as ERP, sales, and marketing apps.
- Find the right partner or partners to get you to that endpoint. Who has the depth and breadth to tie all of these pieces together? “You need to pick the right partners to take you to cloud because the cloud is about service, and in a service environment, your partnership is critical,” Chorley says.
- Keep your enterprise architecture simple. The fewer moving parts, the simpler and more robust it will be. Buying broad solutions that are preintegrated will simplify the architecture and make it easier to maintain.
- Re-evaluate your processes, which were probably based on your outdated technology and have become culturally ingrained. Again, keep the end goal in mind.
- Change management is crucial, so fund it. The cloud reduces your need to invest in infrastructure and associated technologists, so adjust your IT spending toward business change expertise, Chorley advises, because that’s where supply chain initiatives generally stall or fail.
- Put the right people on the evaluation team. “There is an unfortunate tendency when looking at mature product areas, like supply chain, to look for a supersized product, with as many features as possible,” Chorley says. “But the cloud is about speed and continuous evolution, so the focus should be on how fast you can adopt functionality. You need a team that is able to rise above feature-function comparison and has a vision of where they want to take the business.”
- Structure your supply chain project to create interim wins. Look for projects that can deliver business value in six to nine months.
- Make sure you have options in how you approach the cloud for the supply chain. “You’ve mapped out an end goal, but where you start should be flexible and matched to the specific needs and circumstances of the business,” Chorley says. “Start with the specific areas that are most likely to deliver business value and which also progress you along your own path to the cloud.”
- Think about the long-term cost of ownership of your cloud solution. If you have six cloud vendors, and each one of them is upgrading twice a year, then you could be dealing with an upgrade every month, Chorley points out. No matter how easy each upgrade is, “the resulting complexity erodes the core value proposition of moving to the cloud.”
- Consider your cloud vendor’s “ecosystem” of partners. If you’re a global business, your cloud provider needs to be global as well, and able to tap into implementation and support partners worldwide.
- Is your cloud application mere window dressing? “The cloud is not just a licensing change. It’s an entirely different way of doing business, and this requires an entirely different product,” Chorley says. “This fact hasn’t stopped some on-premises software vendors from claiming cloud solutions that are just their old on-premises solutions—warts and all. These applications are not built for the cloud. They are not re-architected to include modern processes, collaboration functionality, or true mobile capabilities. They are not built to be easy to configure or upgrade. They are not built to have web service interfaces, or to be easy to extend without breaking and without causing major upgrade headaches down the road. So buyer beware.”
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