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The End of the Supply Chain As We Know It?

An innovative new approach to a venerable old business process—the supply chain—is gaining momentum as increasing numbers of global companies are defying convention in favor of a new way of thinking—the value chain.

For decades, supply chain models pushed for ever-greater efficiencies in internal business processes as the catalyst for increased profits. But as companies continue to incorporate lean techniques into their operations, the conventional model isn’t looking as efficient as it used to. The traditional approach is hampered by an inability to cope with unplanned events and by the idea that these “exceptions” to business forecasts were errors rather than opportunities.

Driven by information, not processes, value chains allow companies to analyze key customer and supplier data in real time to anticipate both problems and opportunities in demand and supply streams. The payoff: Organizations can proactively take action as new opportunities unfold, rather than react after the fact. Best of all, this approach embraces the unexpected and helps companies find ways to profit from it.

New Realities
Value chains recognize some new realities brought about by innovations in IT and communications. “Because we can move information around the world for a cost that’s next to nothing, changes in demand seen at the point of sale quickly ripple all the way back though the supply chain,” says Stephen Slade, Oracle’s senior director of applications and industries marketing. “Running lean means we build out the value chain to see what the customer wants and what suppliers can deliver.”

Fortunately, transitioning from a process orientation to an information orientation doesn’t require a rip-and-replace makeover, he adds. The first step is for companies to sharpen their customer focus. Successful value chains clearly identify the “pull” of customer buying patterns, rather than the “push” of what suppliers are sending to the market and hoping consumers will buy.

“The key is to understand the needs of the customer, and then work the supply chain from the customer back through the entire operation from suppliers, sub-suppliers, and transportation companies to your inventory and manufacturing people,” Slade explains. “Everybody needs to be on the same page.”

Embrace Exceptions
The payoff can be significant, he adds. Benefits include a new dynamic network of suppliers and partners running in sync according to demand-driven plans based on timely information. The right IT systems facilitate this with sophisticated logistics and supply chain modeling applications that consider a host of factors that can influence customer purchases, including weather, traffic, and local economic conditions.

And what about those previously dreaded exceptions? Value-chain practitioners say, “Bring them on.” “Once you become very sensitive to changes that take place in the marketplace, you can immediately adapt your business processes accordingly,” Slade says.