Linear Supply Chain vs Digital Supply Networks
COVID-19 and the fragmented way global supply chains responded to this pandemic, highlighted serious systematic challenges in the industry. The current set up of the global supply chain is misaligned and in need of urgent restructuring and strategic repositioning. COVID-19 has already been the catalyst for organizations to revisit their global supply chain strategies and accelerated the adoption of Digital Supply Network models and capabilities.
Global supply chains are often largely disjointed, siloed, too linear, rigid and slow in their response. It is this lack of coordination, agility and resilience that called upon change. It’s time to eliminate the “chain” in supply chain, an operating model with the central theme of value creation as a chain.
It is a shock really that despite great advancements in technology, large parts of the global supply chain are still driven by the old and sluggish spreadsheet-based, manual systems. As we recognize the disruptive changes happening at unprecedented speed around us, it’s time to get rid of the chain-based model as we know it.
In this piece, we compare between traditional Linear Supply-chain and Digital Supply Networks (DSN), and explain why the digitally driven supply network system (DSN), to reimagine our model, processes and production as an ecosystem-based network — a supply network is urgently needed.
In general, business supply chain follow a sequential — plan, source, procure/make, distribute/deliver — process. A cascade of functions and activities that is linked to each other. A linear model that promotes a lack of transparency, traceability and visibility into all aspects of the chain.
Supply-chain is a long and complex process, which usually spans across locations and country boundaries. A process that ideally require; closer collaboration between stakeholders, transparency and flexibility across the supply network.
Unfortunately, traditional linear supply chains which still dominate the supply market, are not closely collaborated, they operate in silos, they are structurally and systematically fragmented hence, the inefficiency and incompetence.
The global market needs Digital Supply Networks (DSNs) which are based on; closer stakeholder collaboration, systems coordination, real-time data application, and operated as a digitally linked ecosystem of supply related activities that mirror and enhance the physical supply system on the ground. A tightly knitted network of interdependent, highly connected partners working collectively to drive for a better business outcome for all stakeholders, especially consumers.
Closer collaboration between supply network stakeholders, interlinkage of operational processes and end-to-end interconnectivity of technological systems, are vital to the effective management of supplies.
It is important to note that; the term ‘chain’ in the word ‘Supply-chain’ is there to show the need for interlinked relationship between parties in a supply network.
To highlight this point, let’s use the bicycle analogy. For a cyclist to embark on a long journey and arrive at the destination, he or she will need a bicycle with a chain that is well oiled, strong and interlinked from end to end. A fault in one link of the chain, could render the bicycle inoperable and the whole journey impossible.
The cyclist, bicycle and chain scenario perfectly reflects the business and its supply chain. An interlinked, well oiled and intact supply network (the chain), determines the success or failure for the business in meeting its customer demand.
Digital Supply Network system provide many advantages to a business than a traditional linear supply chain system.
These advantages include the following Five:
1. Ecosystem approach
Unlike the traditional linear supply chain system which is siloed and discrete in its operations, Digital Supply Network system is modern, transparent, collaborated and realtime data driven supply network system.
It operates by digitally integrating all supply related activities into one interlinked and transparent ecosystem, aimed at maximizing efficiency and cost-effectiveness across the supply network.
This digitally linked ecosystem comprise of businesses, entities, systems and processes related to a supply network, virtually interlinked so as to harmonize source to consumption activities and achieve best overall performance that maintain customer satisfaction — into the future.
A manufacturing business for example, can interlink key functions like; Designing of prototypes, Planning of production systems, Sourcing/Procuring of materials and parts, Producing and Distributing/Delivering of semi or finished products, with all other activities, systems and processes relating to a particular supply network. Thereby creating a virtual ecosystem of a supply network processes transparent to accessible to stakeholders in real-time.
Virtual integration of real-time data from various sources within a supply network ecosystem, enhance cohesion among and between parties, improve direct communication which informs joint decision making processes and drive end to end synchronicity, speed and operational efficiency across the board.
An ecosystem approach is a competitive advantage every supply network should have, in order to efficiently and cost-effectively meet customer demand and establish its competitive presence on the market.
2. Holistic view
Unlike the traditional linear and siloed supply chain system which is inward looking by design, a Digital Supply Network system has a holistic view of processes in a given supply network.
With such a broad bird’s eye view, a business or any member to a supply network is able to specifically pin point areas of potential risks or challenges that could negatively impact the network as a whole. Therefore being able to engage in preemptive solution(s), to ensure a seamless flow of supplies from source to consumption.
Hence, consumer satisfaction, customer loyalty, business sustainability and lasting growth.
A holistic view of a Supply Network allows businesses to; virtually map out synchronized supply networks with carefully structured information and material flows, assess individual strengths and weaknesses across the network and jointly determine efforts required to capacitate areas that fall behind, for the benefit of all.
3. Analysis and analytics capabilities
The ability to efficiently analyze historical patterns and reliably forecast future trends across the supply market, is a key requirement in strategic decision making.
The traditional supply chain, given the secrecy and silo approach to its operation, lacks closer collaboration and the transparency required for a business to conduct comprehensive analysis and reliable analytics on its supply processes.
Fortunately, Digital Supply Networks (DSNs), given their closer stakeholder collaborations and digital integration across their ecosystems, find it easier to deploy analytical technologies like; Artificial Intelligence (AI), Scenario Visualization or Predictive Analytics, to conduct detailed supply market analyses and reliable analytics. Processes which greatly assist businesses to determine buying behaviors and market preferences, as they seek for more effective ways to continuously conform to erratic customer demands.
Due to their end-to-end connectivity, real-time data, detailed analysis and reliable analytical capabilities, DSNs can systematically effect immediate changes or updates — across their supply networks. By so doing, being able to avoid costs usually associated with delays in adapting to new market developments, as is often the case with traditional linear supply chains.
4. Operational Cost
The Supply-chain’s — source to consumption — process is long, with prolonged communication, numerous transactions and other costly activities.
The traditional linear supply chain with its paper based systems (in the main), is relatively too slugging, often reactive and operationally expensive.
Take a manufacturing business for example, without an interlinked digital system in place, the company will have to individually contact (call or email) in-bound suppliers, 3rd party logistics providers and out-bound distributors just to enquire or get an update on processes. Imagine the financial and timely costs involved in such a laborious, cumbersome and odious operation. It becomes even worse when a breakdown occurs along its supply chain.
The collaborative nature and digitally integrated systems of a Digital Supply Network, automatically drive operational costs down, because of the advantages of end-to-end visibility and real-time flow of information which enable instantaneous communication, quick and collaborated efforts towards resolving a problem.
And in situations where a problem is a force majeure, DSNs given agility of their network, are strategically positioned to instantaneously engage, share ideas and resources, to shift or accordingly update the process so as to maintain the flow of supplies. Thereby significantly minimizing the impact and cost of the problem.
5. The Bull-Whip effect
Supply-chain processes are naturally interlinked — as they progress from source to consumption. Such that, a failure or fluctuation at one stage can affect other stages down the supply line.
In manufacturing and distribution business, the Bull-Whip effect commonly happens when for instance fluctuations in customer demand leads to inefficiencies in the management of stock and inventory further up the supply chain.
The Bull-Whip effect happens mainly due to lack of efficient coordination in the supply network, which results from lack of end-to-end transparency or process visibility across the supply network. Common in the traditional linear supply chain where tier1 is usually ignorant of what really takes place in tier2 and vice-versa. A situation that gets worse further up or down the supply chain.
A Digital Supply Network however, given its closer collaboration, interlinked ecosystem, transparency of processes and real-time data transmission across its network, cases of the Bullwhip effect are almost non-existent. Because the digitally powered multidirectional communication within its ecosystem, has the capacity to instantaneously detect anomalies and immediately issue out alerts to all members of the supply network, who are then able to preemptively address the issue or adjust their system — before hand.
As technology advancement continues and many businesses or organizations embrace and incorporate it into their daily operations, the cost of technology automatically becomes lower and affordable. This is where the global industry is headed, the industry 4.0 revolution supply-chain cannot afford to live without.
Shifting from a traditional supply chain system to a new digital supply network system could be operationally disruptive and at times daunting. It therefore requires full collaboration from all stakeholders. For it is in the digitally integrated Supply Network where current and future Supply-chain’s efficiency, cost-effectiveness and competence lie.
Digital Technology is the necessary disruption businesses especially global supply chains need at the moment. It blurs the line between the physical and digital processes, enhances analysis and analytics capabilities while providing secure data and actionable insights that improve convergence between operation technology and information technology systems, leading to a well integrated physical-virtual process that curb wastage, minimize costs and produce outstanding performance that meet ever changing customer demands.
Conclusion
While traditional linear and siloed supply chains are too rigid in their response to market developments, Digital Supply Network systems are flexible enough to customize their supply network towards meeting specific market demands and the benefits in making this change are manifold.
The fact that key Supply-chain functions are sequential and linear as they get executed from source to consumption, should be the reason why supply networks must digitally interlink. For that is what will bring transparency, encourage collaboration and enhance excellence across the board.
Digital Supply Networks bridge the gaps and fragmentation in Supply-chain, they integrate and transform supply processes into ecosystems that are dynamic, resilient, flexible and effective in responding to increasingly erratic supply and demand signals.
To stress the need for closer collaboration, operational transparency and process integration between parties in a supply network, let’s seize the opportunity at hand and disrupt and transform it into an ecosystem of collaborative networks utilizing lateral thinking, state-of-the-art technology and processes; omnidirectional flows of data, information, innovation and materials; and valued, respected long-term relationships.
It is time the name Supply-chain officially got changed to Supply-networks.
