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The Common Misconception
In the intricate world of business, misconceptions lead to costly mistakes.
Take the concept of global supply chain management. Many organizations focus on their immediate suppliers and customers. They might examine a few links up or down their supply chain.
No transportation woes? Check. Warehousing and distribution taken care of. Check. Inventory levels right-sized? Check.
As I have said for almost the entire 21st century, this approach is akin to looking at the world through a keyhole. You are missing out on the grand panorama.
The True Essence of Global Supply Chain Management
Contrary to this narrow view, global supply chain management is an end-to-end process.
It starts with product design. It includes extracting raw materials. True global supply chain management includes moving those materials to factories for processing. And it includes manufacturing parts and further processing those parts into finished goods.
It includes transportation, warehousing and distribution throughout your supply chain. Your global supply chain doesn’t end until the product reaches the customer’s hands.
In fact, global supply chain management really does not end there. In a world where service is increasingly a competitive advantage, customer service after the sale is just as important.
Yes, you read it right. Global supply chain management is a journey that spans continents, cultures and enterprises. It’s like a relay race where enterprises pass the baton from one to the other until they race past the finish line.
The Invisible Links
“But wait,” you might say, “we don’t handle raw material extraction or final product delivery!”
Quite true. But if that’s as far as you can think, you’re missing upstream and downstream invisible links. Enterprises beyond yours manage these invisible links.
By definition, you do not directly control these processes. Also by definition, these processes are integral parts of your supply chain.
They are like tree roots. Underground, unseen, but without them, the entire tree falls.
Why Should You Care?
Ignoring these invisible links is like ignoring the foundation while building a house. Any disruption in these links can cause your supply chain to crumble like a house of cards. Natural disasters, political instability or even a global pandemic can disrupt your supply chain at any point.
One thing we have learned over the past few years? With global supply chains, disruption is the new normal. Global supply chains in a post-pandemic world are facing simultaneous globalization and deglobalization.
Finding alternatives to China carries complications, as this piece from The Wall Street Journal explains. Not finding alternatives to China also carries risks, particularly if tensions between China and Taiwan escalate into a shooting war. And national security types give a 50% chance that could happen in the next five years. (Again from The Wall Street Journal.)
Remember, in our interconnected world, one thing triggers another. And if a country restricts exports of key raw materials, you need to know that information quickly.
Solution Part I: A Bird’s Eye View
The solution is to adopt a bird’s eye view of your supply chain. Understand the journey your product takes from the mine and forest to the customer’s hands. (Or from the ocean, rivers and lakes if your finished product is aquatic in nature.)
Share information. Collaborate. Pursue optionality – alternatives for sourcing, production, transportation, warehousing, the entire chain. It’s like being the conductor of an orchestra where every instrument plays its part in harmony.
Building supplier relationships with enterprises that manage your invisible links plays a part. But in our world, supply chain planning and execution can cover hundreds or thousands of enterprises. Therefore, supply chain operations require technology – specifically artificial intelligence, machine learning and cloud computing.
Solution Part II: End-to-End Visibility
This digital age requires digital supply networks. Without one, your enterprise cannot continue delivering goods and services during the next disruption.
Digital Supply Networks integrate artificial intelligence, machine learning and cloud computing. Digital Supply Networks remove boundaries between enterprises, which I first envisioned in my book No Boundaries decades ago. This multiparty network links all raw materials/components/parts from when they enter your supply chain until they exit as finished goods.
All suppliers, carriers, customers, manufacturers and distributors operate on one database, one user interface, one single version of truth. This single version of truth promotes cooperation between enterprises, allowing real-time, simultaneous planning and execution. All players know the real-time constraints and execution status of each party involved. This unparalleled visibility uncovers issues no matter where they are in your network – dozens of suppliers upstream or dozens of suppliers downstream.
Digital supply networks autonomously and simultaneously plan and execute many decisions. They can adjust/create orders, modify inventory policies, forecast transport capacity and optimize transport across multiple parties, not one enterprise. Only significant issues escalate to human supervisors for action.
Real-time, simultaneous planning and execution across multiple enterprises optimizes the entire network, not one company. Imagine reducing cost of goods sold, cash-to-cash cycle, length of time between order and delivery and total delivered cost. Imagine increasing gross operating margins.
Now imagine those achievements across hundreds of suppliers in your end-to-end global network. This goes well beyond optimizing a link or two and could prove critical in an era of inflation.
Moreover, digital supply networks provide valuable insights into customer behavior and market trends. These insights can inform your strategic decisions and help you stay ahead of the competition.
The Road Ahead
Global supply chain management is not just about managing your enterprise-level processes. It’s about understanding and managing your end-to-end supply chain.
Transforming early 21st century supply chains into modern digital supply networks is no easy task. But it is necessary. So step out of your comfort zone and embrace the true essence of global supply chain management.
Remember, a chain is only as strong as its weakest link. Don’t let your invisible links bring you down. Understanding that your enterprise is in some way responsible for every link your digital supply network is the first step.
Want an in-depth discussion about how to do global supply chain management the right way? I would love to talk. Pairing new thinking with digital technologies and optionality will drive growth and success in today’s interconnected world.
Jim Tompkins, Chairman of Tompkins Ventures, is an international authority on designing and implementing end-to-end supply chains. Over five decades, he has designed countless industrial facilities and supply chain solutions, enhancing the growth of numerous companies. He previously built Tompkins International from a backyard startup into an international consulting and implementation firm. Jim earned his B.S., M.S. and Ph.D. in Industrial Engineering from Purdue University.