The Mysteries of Supply Chains
I have been asked this question a lot on Quora, as well in my board and other speeches. A lot of supply chain commentary is becoming too technical and mysterious. Supply Chain Software sellers have a vested interest in creating the mystique – similar to what McKinsey used to do about 20 years ago. But Supply Chain Management (SCM) need not be mysterious. Remember, if someone cannot explain it easily enough – they do not understand it well enough. The purpose of one of my books – Unchain Your Corporation – was precisely this – to demystify the supply chains. This books is written for layperson, can be read in 2–3 hours, and had more than 200 stories and anecdotes to help the readers use complex concepts. At its core, SCM is just about two things – integration, and optimisation. Integration of various functions (purchasing, production, logistics, inventory management, finance, sales) within a company. And, Integration of of various companies that form a supply chain together to serve an end consumer. Optimisation – is the art of getting the best results from the same inputs. You will be surprised to know that most GPS software do not even give you the optimum route even if they have real-time traffic information. The key to testing optimisation is by doing the same exercise manually and comparing against the results of the software. There are clearly degrees of Integration and Optimisation. Higher levels of Integration and/or Optimisation will lead to higher level of efficacy in supply chains. See the figure below – that comes from one of my board speeches:
If you supply chain consultants are not telling you these two simple truths, then all the talk of automation, big data software and driverless vehicles is a pipedream without a purpose. And, if your Supply Chain MBA is not teaching you these two basics then you might have wasted 2 years and thousands of dollars. Here is why… …Everything else in supply chain stands on those two foundations. Your supply chain relationships are part of integration effort, and automation is part of optimisation effort.