Supply chains move goods, but they run on information. The global, interconnected and technology-enabled supply chain operates like a giant neural network, carrying ‘signals’ at lightning speed throughout the network. Creating this neural network has improved efficiency, reduced costs, expanded commerce, accelerated product flows and created all kinds of value. But the network is only as good as its connections and the visibility they provide.
Ideally, the goal of the information supply chain is end-to-end visibility. Without adequate end-to-end visibility, including all internal and external tiers, the globally connected supply chain is doomed to suffer the consequences of volatility – and in many cases, experience amplified consequences.
Unfortunately, most companies still struggle with information disconnects and black holes. This is not a technology issue in most cases. Rather it is a lack of investment in, and attention to, integration. “At a time when, generally speaking, information is abundant and connectivity is more feasible than ever, supply chain executives still rank visibility as their greatest management challenge,” observes a recent report from IBM Global Services. “Although more information is available, proportionally less is being effectively captured, managed, analyzed and made available to people who need it.”
Smarter supply chains will take advantage of unprecedented levels of interaction – not only with customers, suppliers and IT systems in general, but also with objects that are monitoring or even flowing through the supply chain. These objects include RFID sensors and other monitoring devices. “Besides creating a more holistic view of the supply chain, this extensive interconnectivity will also facilitate collaboration on a massive scale,” IBM says. “Worldwide networks of supply chains will be able to plan and make decisions collectively.”
Best-in-class global LLPs can provide this visibility. Their supply chain software solutions and risk management tools deliver visibility into supplier production, inventory and in-transit goods in both the inbound and outbound supply chain. This visibility is critical to managing risk and building resiliency across a supply chain network.
Shared Supply Chains
Some industries and companies are starting to recognize that, in the long run, the supply chain may not be a main basis for competing. Instead, the source of competitive advantage will derive from product, innovation and branding. “This means that more companies are willing to share – or at least consider sharing – logistics infrastructure – including warehousing and transportation, in an effort to optimize service performance while managing costs,” reports Graham Inglis, CEO, DHL Supply Chain Europe.
“The model is based on economies of scale – i.e. spreading the cost of a best practice distribution operation across multiple companies. The core assumption is that high quality supply chain capability provided by an external logistics service provider is available, consistent and cost effective.”
A shared supply chain model spreads risk – e.g. assets, infrastructure, people, IT, transportation – across multiple parties. It creates a more robust supply chain capability that can cost effectively flex and flux with demand cycles, while ensuring high service levels. And in situations where access and capacity constraints are growing – for example increasing urban congestion and time-of-day driving restrictions – a shared supply chain acts as a hedge against the negative impact of such constraints.
In Europe, Kimberly-Clark Corp. and Lever Fabergé (now Unilever's Home and Personal Care unit) began experimenting with the shared supply chain concept 10 years ago, with joint deliveries to customers. The experiment was a success and the practice is spreading within other companies throughout Europe, the United States and elsewhere.
Pharmaceutical and medical device manufacturers have also embraced the shared logistics services model. The shared services model reduces costs for manufacturers as well as their customers. It spreads risk across multiple parties, and ensures an optimized flow of product to the customer.
In the coming years, urban congestion will likely force more companies to adopt a shared supply chain approach. In its 2013 report “Planning and Design for Sustainable Urban Mobility,” UN-Habitat discussed this issue and described a potential model for mitigating the issue of supplying goods to cities facing gridlock. The concept calls for creating urban logistics zones on the city perimeter – a logistics “ring” in which logistics service providers consolidate goods for shared, rationalized deliveries to the city.
Sharing supply chains within a single industry is the first step toward a much bigger idea – that of sharing supply chains across different industry sectors. “As OEMs reach their apex in logistics efficiency and procurement optimization, their next frontier will need to include broader approaches towards collaboration in their industries and sectors,” says Todd Starbuck, executive vice president, Business Development, DHL Supply Chain Europe.
“The next logical step will be to further strengthen cross-sector relationships such as retail and consumer, to drive optimization that will reduce duplicate transport networks, value add centers, regional distribution centers and much more,” added Starbuck In such a scenario, an ‘orchestrator’ third party, which has visibility into customer supply chains of all types, would provide the shared supply chain capability.
Such cross-sector sharing and optimization does more than just cut costs. It provides access to a portfolio of capabilities and best practices that enable companies to create supply chains that not only are ‘fit for purpose’ today, but can adapt to the requirements of the future. “For companies that hesitate to share their supply chain within their own sector for competitive reasons,” Starbuck adds, “this cross-sector sharing model eliminates these concerns while providing all the benefits.”
The lessons learned over the past few years from disasters, disruptions and high levels of volatility make several points clear. “The increasing vulnerability of supply chains requires a new focus on managing and mitigating risk which extends beyond the four walls of the single firm.”
Supply chain vulnerability is a network-wide issue, and must be addressed on a network-wide basis. This requires higher levels of information sharing across the supply chain, particularly with the logistics service providers charged with executing the collective supply chain operations.
This article was excerpted from a recently published report titled “The Resilient Supply Chain” by Lisa Harrington, a strategic consultant, academic and co-author of three books. The report was sponsored by DHL, a part of Deutsche Post DHL. At the Robert H. Smith School of Business, University of Maryland, Harrington is associate director of the Supply Chain Management Center and lecturer on supply chain management. She also is president of the lharrington group LLC, a firm providing strategic consulting services across global supply chain strategy, operations and best practice.