There is a growing realisation that businesses compete as a supply chain or network rather than as a stand-alone entity. Part of the reason for this shift in thinking is that many organisations have outsourced so many activities that the need for close co-ordination and synchronisation of these activities is critical.
Another shift is in seeing the supply chain not just as a cost to be minimised, but rather as an opportunity for value creation. Indeed, the supply chain, properly designed and managed, can be a powerful way for a business to differentiate itself. By managing the wider supply chain, and particularly by seeking a more collaborative approach, there is a greater likelihood of the whole becoming greater than the sum of the parts. In other words, rather than seeking “competitive advantage” in a narrow, single company sense, smart companies striving to achieve “collaborative advantage” through supply-chain collaboration.
Another powerful reason to change the conventional supply chain design is growing turbulence in the wider business environment. There is a wealth of evidence to suggest most businesses today compete in a much more volatile and uncertain world than ever before – on both the supply and demand sides. In such conditions, conventional supply-chain management – based on forecasts and long-term plans – is increasingly unviable.
Instead, there needs to be a greater focus on how a business can achieve greater agility, so it can respond to events as they happen. The companies most likely to survive and thrive in this challenging environment are those that have invested in dynamic capabilities – the ability to adapt rapidly and appropriately to changing conditions in the supply chain, both upstream and down.
To acquire such capabilities, businesses need to be prepared to work across organisational boundaries – since often the biggest barrier to agility and responsiveness is the lack of connectivity with other entities in the supply network. When organisations in a network have high connectivity enabled by shared information and closely aligned processes, their ability to adapt and move quickly is strengthened.
In effect, supply chains in today’s outsourced and global world have become ecosystems of supply and demand that constantly need to adapt to changes in the wider environment. The problem is that many companies have made decisions that lock them into supply-chain structures that may not be appropriate for today’s circumstances. For example, some years back the business may have made decisions about its manufacturing and sourcing strategy that was deemed optimal at the time but, as a result of broader economic shifts caused by the dynamic forces of supply and demand, that solution no longer works.
What, then, is the way forward for companies facing such a challenge?
The first requirement is to recognise that supply-and-demand networks are complex systems and, by definition, complex systems cannot be optimised since they are constantly changing. We can and should seek to improve the system’s performance but in a way that does not compromise future changes. In other words, a business should make supply network decisions based on the principle that the best decisions are those that keep the most options open.
These decisions may not lead to the cheapest solutions – in fact they probably won’t – but they will open up the flexibility to reconfigure the network as conditions change.
Perhaps the biggest requirement in confronting these seismic changes in the supply-chain landscape is a change of mindset to enable the business to cope better with this new, interconnected world. It’s primarily a shift in thinking: from the left brain (logic) to the right brain (creativity).
The idea is that conventional approaches to supply-chain management have largely been dominated by mechanistic, even formulaic, decisions. In contrast, the right-brain approach requires an understanding of the bigger picture: how the parts connect and the interactions that may result. In seeking to better manage the connections in a network to achieve solutions that work for all parties involved, the whole does indeed become more than the sum of its parts.
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