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A perfect storm of events is triggering a fresh look at the supply chain. New challenges including Industry 4.0 technological changes, unpredictable tariff and trade scenarios, and rising commodity costs have tempered to some degree the otherwise optimistic outlook among manufacturers. At the same time, new growth opportunities are on the horizon. Taking advantage of these opportunities while mitigating the significant and continuously emerging challenges requires a fresh look at optimizing the supply chain.
Traditional supply chain models often revolve around sub-optimal legacy deals, sourcing silos which lead to redundancy with a shortage of supply or cost overruns and a lack of end-to-end visibility. CEOs may have had a good view into who is supplying their companies with what, but they still lack visibility into the extended supply chain incorporating not only the customers and suppliers, but the customers’ customers and suppliers’ suppliers.
Supply chain decisions amidst these global challenges call for a deeper look. Optimizing a supply chain is sometimes incorrectly seen as a zero-sum game with the goal of emerging a winner among a field of others and optimizing for only a single party. By extending the optimization to all parties involved, we not only get greater visibility but greater stability in a supply chain, creating value for everyone.
Get Ready For The Storm
Meeting challenges head-on and gaining a competitive edge in a difficult and unpredictable environment requires a shift in strategy. A more sustainable, value-creating approach sets up a collaborative scenario where one participant takes into account the strategies and needs of all the others and, as a result, every stakeholder gets the desired outcome.
The Total Value Optimization (TVO) approach to the supply chain is a methodology created by my company, and you can use it your organization as well. It’s intensely collaborative, integrative and is realized when supply chain partners work together to drive continuous improvement and innovation to all stakeholders. TVO is achieved when an organization along with all partners dynamically anticipates demand by synchronizing its buy-make-move-fulfill supply chain in order to deliver the most value to customers, investors and other stakeholders at the lowest cost and improve cash flow and support growth for all involved.
Find The Weakest Link
Any sort of mechanical engine has multiple functions happening simultaneously with a type of brain controlling various functions. This intelligent engine will often be subject to a stress test to determine how well it is functioning and whether it can hold up under a variety of conditions. A supply chain functions in many ways like an engine with a brain, thousands of synapses firing at any given time, sometimes with hundreds or even thousands of different moving parts and thousands of rules governing what happens under different circumstances. Unpredictable outcomes are often hidden deep within the supply chain and can be the result of external factors like trade wars or internal factors such as a lack of optionality in sourcing, thus, often lacking a true awareness or integrated end-to-end understanding.
The first part of optimization is the stress test to understand this complex functionality and to determine where those hidden weak links exist. The stress test becomes even more important as new technologies like the internet of things, blockchain, artificial intelligence and 3D printing are brought into supply chain decisions. Those technologies are very useful in identifying new opportunities and creating value but, at the same time, they create more data, complexity and different potential challenges. Stress testing will identify those challenges more clearly and help create a data-driven and technology-based end-to-end supply chain that is better understood, has more optionality and can perform in an optimized state.
The Supply Chain As A Competitive Weapon
The traditional approach to supply chain is to see it as a way to extract cost. This outlook is only partially useful; a better approach is to see the supply chain as a way to create value. The extraction point of view looks at the supply chain as a series of cost centers with the primary goal being cost savings alone, which is an incomplete view.
Cost extraction often takes a win-lose approach, and it does not truly seek to optimize the supply chain. Approaching negotiations from a power perspective may yield shorter-term gain for one party at the expense of other parties. Using a value creation approach based on Total Value Optimization brings in more meaningful end-to-end collaboration and a win-win approach to negotiation in which all parties walk away with value created through an integrative approach. Value creation through Total Value Optimization allows all parties to win because the entire supply chain collaborates on a deeper level with greater transparency, causing hidden new understanding and opportunities to often come to light.
Supply Chain’s New Normal
The supply chain is bigger, more complex and has more participants across greater geography, often in multiple countries. It is driven by a complex set of synapses, by data providing greater insights supported by Industry 4.0 technology, and it is subject to many more unpredictable external factors than ever before.
Stress testing, collaboration with intent for greater integration and end-to-end visibility become the hallmark of successful supply chain negotiations and operations. Decisions will need to be based on actionable insights and visibility of the entire supply chain. CEOs need to ask themselves whether they, and their organizations, have the necessary insights to these complexities and are ready for these changes, and whether their suppliers, and their suppliers’ suppliers, are ready as well.
April 1, 2019 at 12:25PM
Forbes – Entrepreneurs