A few years ago, Harvard Business Review published a provocative article entitled ‘The Death of Supply Chain Management’. It became as viral as an article on Supply Chain Management can be, circulating widely on Twitter and LinkedIn.
The authors posited that the advent of Industry 4.0 technologies, the digitalization of data, and the growth of advanced analytics, machine learning and AI would mean that “within 5-10 years, the supply chain function may be obsolete, replaced by a smoothly running, self-regulating utility that … requires very little human intervention.”
That’s not how things have turned out so far. It seems that more than ever, the supply chain manager is a critical contributor to the performance of their company.
The pandemic changed everything
The obvious place to start considering why is the pandemic that upended supply chains around the world. With lockdowns changing consumer behaviour, some of the weaknesses of hyper-optimised supply chains were exposed. From toilet paper manufacturing that could not easily switch between industrial and residential formats to eggs and flour prepared and packaged in separate streams for consumers and commercial needs, many supply chains struggled to adapt.
The ones that did, however, were because managers collaborated across business silos to remove complexity and focus on key SKUs at the intersection of manufacturing speed and high sales volume. Rather than being obsolete, one senior marketing executive at a major FMCG company told us “I knew my supply chain was a key strategic advantage, but I had not realised how much it could be a key tactical advantage as well.”
Another impact of the pandemic was an explosion in e-commerce, leaving companies scrambling to adapt their order treatment and fulfilment activities to meet the demand. With stores closed in many markets, this became a matter of survival, with supply chain front and centre. Many companies are now trying to push their omni-channel strategies as a way to build in free supply chain resilience for the future.
The next “big one”
Of course, the pandemic was very much unchartered waters for all of us. But the next time might be an earthquake in Japan, an economic downturn due to a financial crisis, a volcano in Iceland, new trade tariff wars, or even a major global waterway closure. The days-long blockage of the Suez Canal also spurred some companies to rethink their global supply chain footprints, both internal and external. This will require careful consideration of the quantifiable cost of freight and customs duties, but also the more nuanced impacts of reactivity, agility and working capital that require a supply chain manager’s participation.
The supply chain spotlight
Even without pandemics and headline-grabbing logistics snafus, supply chains are front-of-mind more than ever. The waves of exciting capabilities brought by Industry 4.0 technologies have impacts beyond the world of supply chain management. Companies leading the way in digital transformation have understood that these technologies are opportunities to rethink their value proposition, for example through personalization, and not merely a way to automate away their supply chains.
The potential impacts of industrial automation and AI have led to discussions about structural change to the economy, jobs and even to society at large. The entrance of supply chain management into the mainstream has gotten the attention of those looking for a promising career choice. Gartner, the supply chain advisory and research company, has seen the U.S. university masters programs in supply chain in its ranking grow 170% from 2016 to 2020.
A seat at the table
As much as we would like supply chains to be simple and predictable enough to run themselves, a more achievable goal would be for supply chain managers to leverage all of the exciting capabilities available to automate the routine, and to build visibility and agility for the next unforeseeable problem.
A recent survey by IMD revealed that the highest priority for supply chain managers was to implement Sales and Operations Planning – a process that requires deep cross-functional collaboration – and integrate the supply chain strategy and the business strategy. Rather than looking to set up supply chain as an autonomous function, companies are looking more than ever to place it squarely in the boardroom.
Supply chain opportunities
Contributing to this spike is the growing interest of consumers, professionals and investors in sustainability and the circular economy. Many companies look to their supply chains to lead the way in finding solutions to these critical issues. To quote the Head of Strategy from a large multinational “We have spoken about end to end supply chain optimization for some years already but the scope, from which end to which end, has changed dramatically for today’s supply chains.”
Supply chain executives today, have to navigate ever more complex regulatory (environmental) requirements, give input to IT on how to digitally enable their supply chains and leverage their supply chain, a key driver in ongoing business transformations. This way, far from facing death, supply chain managers need to focus on being at the table as an active contributor in shaping the company’s strategic vision. Or, to invoke common wisdom, it’s nice to have a strategy – its far better if you can execute on it and enact it operationally
What does the future hold?
We can think of AI in supply chain management a bit like self-driving cars. Many of us are already enjoying the benefits of functions such as assistant systems for parking and distance measurement, but to reach fully self-driving cars we must have many more systems working seamlessly together. The car industry has been promising us this kind of driving experience for decades, but in reality, it is the case for only a tiny percentage of cars on the road.
Similarly for supply chains, AI will help supply chain planning, but to get to full touchless flows will take much more time. So, while it is vital for supply chain professionals to understand these technologies, the truth is there is a lot of work to do to get the basics right before we even consider entertaining significant added value from AI, so we should perhaps also moderate our expectations for just how fast AI will play a major role at scale.
Ralf Seifert is Professor of Operations Management at IMD Business School and co-author of new book, The Digital Supply Chain Challenge (2nd edition), with Supply Chain Management Professor at ESCP in Paris and Founding Partner at Innovobot, Richard Markoff.
