What does the perfect supply chain look like?
1 June 2018
Trevor Miles, Thought Leader, Kinaxis
In this Business Reporter interview, Alastair Greener talks to Trevor Miles, Thought Leader, Kinaxis, about the future of the supply chain.
In an ideal world, what does the perfect supply chain look like?
For supply chain thought leader Trevor Miles, transparency is key. Transparency must exist across multiple chains or multiple nodes in the supply chain so that people have visibility of what’s going on and what changes are taking place. Visibility takes away the “I didn’t know" excuse. But there are legacy factors at play that prevent transparency.
“Most of the processes we use to manage the supply chain were defined in the 1960s when there weren’t any real computers, the advent of Enterprise Resource Planning (ERP) was nowhere on the horizon, and the Internet and web browsers were just figments of our imagination,” says Trevor. Even though it’s almost 60 years later and modern-day technologies exist to manage the supply chain, we’re still using processes and organisational structures defined from ideas dating from the 1960s.
So if we have the technology to drive digital transformation, what’s stopping us from achieving the supply chain of the future? It’s our existing incentive plans, our organisational structures and the business models of different suppliers that are proving to be key inhibitors to transparency and visibility.
What is the key to removing these inhibitors? It’s fundamentally the difference between doing digital and being digital. Doing digital is simply slapping artificial intelligence (AI) and machine learning (ML) capabilities onto existing outdated business models. Being digital – true digital transformation – requires much more, including securing buy-in and support from the CEO, looking at business objectives, redefining the business model, changing processes and involving key departments across the organisation.
Learn more about Trevor’s insights about the supply chain of the future by tuning into the full Business Reporter interview.
If you’d like to explore more about supply chain technology and why the future of AI is now, download Trevor’s white paper: Rise of the smart machines: How concurrent planning and AI can help you win big in supply chain planning.
Welcome to Business Reporter's future of the supply chain campaign. I'm Alastair Greener. Most of us have surely heard about the Dodd-Frank Wall Street Reform and Consumer Protection Act in the US, but few of us know that it's not only about the regulation of the financial industry.
The act forces American companies to provide full transparency of their supply chain. And if they experience unethical or criminal activities anywhere, they must cease operations with the suppliers who use questionable methods. The act is one of the signs that the world has started to develop new rules and methods. The intention is good, but are we ready? Are technology, people, and processes developed enough to bring full transparency, efficiency, and real-time responses to challenges in our supply chain?
To find out more about the opportunities and the challenges, we've invited Trevor Miles from Kinaxis to come and talk to us.
Good morning, Alastair.
So in an ideal world, what does the perfect supply chain in inventory look like?
Well, it has to start with transparency across multiple chains or multiple nodes in the chain so that people have that visibility. And the visibility adds 1 extra element to it, and that is it takes away the I didn't know excuse. So too often, people don't have that transparency. And when they take a decision, they don't know what the consequence is. So this is a key barrier to actually getting a much more performance supply chain.
And it's interesting you talk about transparency, as we did in the introduction. That's what we're seeking within the supply chain. However, it isn't always there. We're not always getting this transparency. Yet, we think, hang on, we're in 2018. You know, we've got all this technology. We've got so much at our disposal. How is it that we're still not managing to make it transparent?
Well, most of the processes we use to manage supply chain were defined in the 1960s. If you think about the 1960s, there weren't any real computers yet deployed. The advent of ERP was nowhere close to us. The internet, web browsers, all of this were just figments of the imagination then. And yet what we've done is we've put into place processes and organisational structures that are defined upon organisational ideas that date from the 1960s.
Orlicky's book around MRP dates from those very early, early days. And in fact, that was all done by hand. And we then put these organisational structures in place and allow people a certain amount of time to do that. And yet, if you look at APICS certification, if you look at the SCO definition of a supply chain, it's very much still structured around those particular concepts.
And this is one of the key barriers to us being able to actually leverage the technologies that are available. The technologies are available, it's just that the incentive plans, the organisational structures, even the business models of the different suppliers or different people within the supply chain are the key inhibitors have actually been able to provide that visibility.
You say it's the key inhibitors for that. So what is it about those legacy systems, those old ways of working that actually has slowed down or obstructed the development that was required?
So very often what happens is that companies-- many of our customers of grown through acquisition. So when they acquire another company, they, of course, also acquire all of the IT architecture and their planning systems. So now if you've got a company that has acquired several companies, they've got islands of information. And as a consequence, when they are trying to actually look across this entire supply chain from beginning to end, they need to necessarily take it through this very seesaw environment where they look at a set of information in 1 ERP system, do some analysis, and then push it back up the chain.
But it's not just the ERP systems. Even our planning organisations and our planning solutions have developed along those lines, where in the 1990s when supply chain became a bigger topic and we had advanced planning systems, they were actually focused on providing solutions for specific functions without looking at what it meant to actually bring the chain together, because supply chain is actually about multiple people working for a common objective. And yet, all of the processes and the technology that was developed at that stage dealt with each thing at 1 stage at a time.
So there has to be change. Let's play just an experiment here for a second. Let's say that I'm a CEO of a FMCG company and I recognise that I need to spend money on transforming my systems, going through this digital transformation. What are some of the key questions I that need to be asking at boardroom level to be able to move in the right direction?
Well, I think the key question because this whole question of digital transformation is, of course, a very hot topic. And the key question that people are asking is, what's the difference between being digital and doing digital? And in reality, far too many people are focusing on doing digital.
And what we mean by that is they slap in artificial intelligence and machine learning capabilities or other aspects of that onto existing business models. When in reality, the key benefit that's going to come from that is, in fact, digital transformation, which is what's called being digital. And that then means you need to actually look at all of the business objectives. It is a business model, a change. And the business model change then, of course, drives down organisational change.
But I want to separate out the 2 sides or 2 aspects of digital transformation because there's also a lot of legitimacy and focus on product transformation. And what I mean by that is putting all sorts of sensors into products, et cetera. Those are the products that people sell. And of course, we work a lot in high-tech electronics, automotive, aerospace and defence, and lots of people are focusing on that aspect of digital transformation without realising that, in fact, internal to their own organisation, they are impeding the benefits that they could achieve in being able to provide this customer much more visibility of where the product is, where their problems are likely to occur, et cetera. So digital transformation is, at the board level, has to be about a change in business operating model.
The second question would be, where are all our people? This does require a change in approach and a change in capability of an organisational structure, and therefore, people do need to be brought to that level of expertise.
And the third one would be, what is our legacy ERP, and what role is it going to play? We see a lot of change in the fundamentals of the ERP layer. And people are necessarily going to have to make some level of change at that base technology in order to provide much more of the digital platform above that.
We've been talking a lot about change and the necessity for change. Who within the organisation is going to be the champion of that change? What we see emerging a lot is a chief digital officer. Whether that is a role that's going to survive for some time, I think it's more of a change agent. I think it's more of a Band-Aid. And it's probably more of a champion in a side of the organisation for these concepts.
But in reality, this has to become core business. It shouldn't become an added layer on top of the organisation. It needs to be brought down into fundamental process change.
I see HR needs to play a big role in this, in the sense of being able to recruit the right people and send the existing people correctly, et cetera, et cetera. We hear a lot of stories about the likely disruption that's going to cause inside of many organisations. I honestly am of the opinion that it's unlikely to cause a huge reduction in the amount of people required in an organisation.
But I do believe that there's going to be the need for refreshing of skill sets. And as a consequence in these situations, it's always a question of, who do I recruit? Who do I let go? And this is then why HR is going to be a big driver for that need. But that HR can only work in the context of the business model that has been defined by the organisation.
So where do we see this? Yes, a chief digital officer is being recruited, but fundamentally, it starts at the top where the CEO has to get on board and understand what the objectives are, and then drive that change from that perspective.
You've talked though about the changes in skills required, but what about the technologies? What technologies are going to need to be employed?
This is where we talk about the difference between being digital and doing digital. So quite honestly, in our perspective, the capabilities of actually providing that transparency, that capability of 1 function in an organisation, or even the ability of 1 organisation to communicate and collaborate and cooperate with a different function has always been there. The technologies right now are not the barrier in my humble opinion. The real technology or the real barrier to change is actually the organisational structures. As I mentioned before, most people go through APICS training or something similar and that they're taught to be perfectly good at 1 particular function without considering another-- the upstream and downstream functions.
And I have 1 anecdote where recently we followed the planning process in an organisation, and there was a demand planner who had received many prizes and accolades for how well she did her job. And her role is, of course, to maximise the amount of revenue that the organisation is going to be able to achieve, including providing incentives to customers in order to purchase goods at a certain time, earlier, et cetera. So we asked a very simple question. When she creates these incentives, how does she know that the supply is going to be available to satisfy that demand that she's generating? And her reply was, it's not my job.
Now you know, that is at the heart of the problem. She is doing her job well as her job is defined. The problem is not in how her skill sets, her problem is in how her job is defined. So this gets to the heart of the visibility and the organisational structure changes and ideas about how a supply chain should actually operate, because she was operating well. But how do we get rid of that is really the key question.
You've given us a flavour there of what you'd do. But perhaps you could be a little bit more specific and explain how Kinaxis is involved in the whole process and how you help your clients.
So the easiest way is perhaps to talk about some of our customers and how they are structured. We started in high tech electronics and with many of the OEMs, or the original equipment manufacturers, the brands that people would know. But of course, high tech electronics has been highly outsourced for a long time, and many of our customers are also the contract manufacturers that provide to the OEMs. But the OEMs have the fundamental need of understanding how that supply chain operates all across the different nodes.
So one of our customers connects into 4 distributors, 3 key customers, their own ERP system, the 4 contract manufacturers, and 100 suppliers. And all of that information is lifted up and is provided in a platform so that the OEM can understand how the supply chain is operating, because they buy goods, which they sell to the contract manufacturer, who manufactures the final good, which they sell to the distributor, who actually sells to the end customer. So they need that visibility. But that's a very easy way of describing it because we can see the different business models, the different layers.
We also have a number of customers who do they own manufacturing. In fact, I'd say the majority of our customers do they own manufacturing. And yet, we see the same conflicts where the demand side and distribution side, the people who work closest to the customer, are very different from the people who work with the suppliers, who are buying materials to then manufacture goods to then build inventory in the right place, et cetera. So even inside those organisations, there's this invisibility.
Now our solution rapid response provides that visibility. As our CEO, John Sicard, has often said, a key capability that we provide our customers is we take away the I didn't know excuse. Now excuse is a little bit harsh because people have been trained to operate in a certain manner and they might not have the tools available to them. But what John actually means is that, in my example of that demand planner, in rapid response when the demand planner changes a demand, they get very rapid feedback of how much that demand is unlikely to be satisfied on time.
They can go 1 step further to actually investigate what is impeding that supply. So now you can immediately see some transparency that occurs. But of course, the transparency always has its limitations because the model inside a rapid response might only go to the purchase department of our customer and not necessarily to the supplier. Nevertheless, they might be able to see supplies that are coming in and understand how that is impeding the flow.
So rapid response is that capability of providing that visibility. And as one of our customers has said, they are not necessarily changing where people sit and what people focus on, but what they're making sure is that they work in a transparent environment so that they do know what the impact is on the rest of the organisation. They have a person who's making a decision on a new purchase or running an extra shift or whatever it is has a clear understanding of what the impact is on revenue, on inventory, on customer satisfaction, everything else like that.
So they have that clear visibility. Now the question is, how do they behave in that context? Well, this is already quite a lot of change for organisations. But it is pointing in the right direction for that digital transformation because it's not that people want to behave badly, it's that typically, they don't have tools that allow them to do that analysis quickly and understand the consequences of their decisions. So that's the heart of what we provide that's different from solutions out there at the moment.
And how can you ensure that third party suppliers also comply?
That comes-- well, I always say it's not a technology barrier. So how much data flows in is merely a matter of how many pipes are bringing the data in. It becomes much more of an issue about the business model competition because obviously the supplier has their own business model, which might not be totally consistent with their customer. And even in our case, our customers then often will sell through distributors, and the distributors' business model is not consistent. And that is the far bigger barrier. So it is about that business model first, and then its about relationships second. But it's not a technology barrier. It really is not.
Now we've talked a lot about the supply chain. We've talked about transparency. We've talked about new technologies. If you could give our audience just 3 main takeaways from this interview that could really help them transform their businesses, what would you suggest?
The first would be that digital transformation is available to them today. It's not a technology barrier. So really it's about the willingness and understanding of what needs to be undertaken, the process change, the organisational change to achieve that.
Number 2 is it's not a big bang. You don't have to do everything at once. It is about learning and fail fast to a large extent. We don't know what the future's going to look like. We have an idea. We promote an idea of a network planner, which is getting away from the concept of a demand planner and inventory planner and capacity planner, network planner looking across all of those.
That is our concept. That's our idea. But each organisation is going to have to adapt that idea to their own context. So it's ready. The concepts are available.
So the last point in all of this is get started because the longer you wait-- it's like even in the supply chain when you know there's a problem and you wait to be able to resolve the problem, its only going to get worse. So the same thing here that, you know, get started quickly. It doesn't mean that you're going to know exactly where you're going. But if you don't start now, you're going to start too late.
And the real key is if you don't get started, the chances are you're competitors already are. And there's a massive amount in there and it's been fascinating finding out about the future of the supply chain and how technology and transparency is all very much a part of that. And you've given us a lot of insights into that. So Trevor Miles from Kinaxis, thank you very much indeed.
Thank you very much, Alastair.