Supply chains is a serious topic and is critical to the survival of mankind. COVID has proven that the current supply chains performed reasonably well and ensured ‘essential’ goods are delivered. But, it was also evident that even with couple of months of disruption things have become very scary.
There are several trends that are emerging. First is the impact of corona virus.
Reconfiguring Global Supply Chains
As a result of reduced production in China, the US imports tumbled.
As a result, there is increased debate across countries on supply chains and manufacturing capability building. French Minister of Economy and Finance has called for EU governments to rethink their approach to value chains in order to assure “sovereign” and “independent” supplies. It is very clear that there is going to be significant realignment of supply chains over next few years.
Increasing speed of execution expectations
Second, is growing demand for ‘Speed’. Across all industries particularly retail, logistics, healthcare, the speed has become the most important factor in designing the supply chains. From the days of pony express till today’s amazon fresh, the times have been consistently reducing. It is expected that with drone delivery, we will very soon see a rapid decrease in lead times.
Are retail supply chains not very different from manufacturing supply chains ? Yes, they are different if the manufacturer is not directly related to a retail consumer. For example, does delivery time matter for Boeing ?
For boeing, its not so much how fast they can deliver, but how fast they can fulfill their demand. The exposure to long lead times makes the company exposed to too many risks, and any backlog fulfillment will directly result in revenue and profits. Hence, speed of execution is even more important than retail industry.
Now is the time to rethink
As companies head into post covid era, they will be spending time on thinking about risk, speed and political environments. While doing that, its a great time to build “Realtime Supply chains” and ensure the company can compete on innovation in the longer run. The key objectives of Realtime supply chains are
- Real time – Adjusting output and intermediary processes to every change in input at the most granular level. For example, can an appliance demand plan change based on a point of sale transaction ?
- Flexible – Ability to reconfigure based on changing inputs. Can your company provide variety and speed for every preference of your customer ? ie. Mass customization.
- Accurate – Can you predict future accurate enough ? Can you reduce the band of error significantly in your forecasts, your production plans, your shipping orders ?
- Efficient – Can you do all the above at an optimal cost. End of the day, supply chains are optimization problems. Can you convert your optimization plan to practical and implementable ?
Traditional Architectures of Supply Chain
Business strategy and process should reflect and drive architecture of systems you use.
Unfortunately IT and architecture has been of little interest to a supply chain managers. Technology has been a second grade citizen. Don’t get me wrong, supply chain managers rely on systems built on some technology to run their day to day operations, but mostly these systems are prebuilt ‘Automation’ tools, that convert a manual process to automated process. These are IT systems, built by software companies that company has no control on.
Take for example, look at how MRP systems work in manufacturing companies. It takes a forecast and actual orders ‘periodically’ and schedules a batch of production and materials. Compare that to Kanban, where each downstream consumption triggers a ‘Signal’ upstream to start production.
In traditional archtiecture of supply chain systems behave like a control tower. They acquire all the data with whatever timelines possible, process the information in whatever time period they agree on and tell stakeholders what to do.
In this type of scenario, the control tower is your ERP.
- Its periodic and not realtime. Information flow depends on speed and capacity of the centralized planner.
- Its never accurate, since there is always time lag and things change during the period between information acquisition and decision making
- Flexibility depends pretty much on the ERP/The central controller, and often times, the complexity of each partner multiplies at the centralized controller. For example, a supplier process change triggers variety of scenarios for the central planner due to dependencies on other partners. Suppose a supplier part specification changes, the effect is not just on the end product, but the other suppliers that supply products that are related to first supplier need to redesign theirs and that information coordination need to happen with central planners as the broker.
This is the reason why ERP implementations go out of control on complexity and we here abundant horror stories (here).
Event Driven Model
The alternative is to model the business as set of independent agents. For example, model each supplier and customer as a ‘Robot’ that sends out message when there is a change in its situation. The customer ‘Robot’ will listen on that message and reacts to it directly.
This is no different from “Don’t call us, we will call you when we are available” model.
This kind of behavior is very evident in kanban type business processes.
- Everything is realtime. Its upto the ‘Listener’ to take action and respond. Information is instant.
- Its always accurate as the time lag is seconds compared to days
- Its highly flexible, as there is no intermediary to wait on.
You can read more about these kind of business processes
Dealing with ERP and Legacy systems
In architecture parlance, this is call ‘Event Driven Architecture’. Modern software is increasingly adopting to this realtime streaming model instead of a legacy ‘Batch Model’. However, companies have invested significant money on ERP software already, and any re-engineering is expensive.
We understand that it is highly unlikely that we can anytime soon move away from ERP and invest in breaking it up. Here are some alternatives.
- ERP contains humongous amount of functionality and its waste of time for a manufacturing company to rewrite all over again.
- Move the legally enforced and undifferentiated components to SaaS apps like workday, Ariba etc. Once you take this off, your core is much simpler to replace or enhance.
- ERP is now a days offered modular, hence we already are doing what you are suggesting
- Big ERP providers have modularized departments, not business processes. You can technically buy purchasing, finance, HR, Manufacturing modules separately. However, the business process runs through all these modules and hence are not a true modular design. Modules are not ‘Business Agents’ that can emit business events and process received business events. This suggestion from ERP vendors is not going to be of any use.
This article is not to propose rewriting ERP, but challenge IT executives to look deeper into the challenges and options available. The intermediate solution is to make the ERP behave like an event driven system. At the least, we suggest that CIOs stop expanding on ERP functionality and start writing custom software using modern event driven architectures. If you are struggling to retire mainframe based applications, its even more appropriate for you to think event driven and redesign your business processes and build applications that enable flexible and real time supply chains.
Building blocks of event driven supply chains
- Event Generation: Despite what systems you are using, generate and publish all critical events. A technique call event storming, where in you work with stakeholders to identify all business events in a business process. In case if the priority is to retire a legacy system, you can start there and identify events that can be captured from your legacy system. Encourage all your business partners to publish a road map of events that they are going to generate.
- Event Standards: Agree on a standards with all your internal and external partners on format, speed and security of your events.
- Event consumption: Mandate that all applications henceforth should behave as an independent agent which consumes events from others and produces events that may or may not be of immediate interest.
- Event infrastructure: Ensure there is easy and secure way to share events across the globe realtime. Share this with your business partners. and encourage them to use it.
Supply Chain events of importance
Here are few examples of events that are of importance.
- Sourcing Side
As you can see, you can define all such events and build the mechanism to obtain such events continuously. This will allow for downstream systems and planners to instantly react to each event, thus making the process more resilient, fast and efficient.
Immediate benefits of event driven supply chains
We discussed some of the long term benefits already, which include accurate, flexible and risk reduced supply chains. Some of the immediate benefits include
- Real time information dashboards providing transparency of information
- Migration of legacy systems and creating foundation for modern planning systems
- Predictive capability from acquired events.
- Reduced errors in cross company planning
- Improved forecasting
It is increasingly important that every company behave like a ‘Engineering software’ company. The culture of building custom software will be necessary for survival of your company in the longer term. Your physical goods , whether they are cars or washing machines, eventually will need software. It is time you build a technical organization that not just builds your product software, but the processes as well. Take Tesla or Apple. They differentiate not just on their end products but also on their business processes. Look at this as a long term investment.