The hope, the dream, the expectation of the nearly every CEO has always been to constantly synchronize people, operations and suppliers to yield a more efficient and effective business. We all are experiencing the emergency measures of business process and human separation due to COVID-19. We also probably realize much of this will pass and go back to normal. But this also brings to light for many business leaders that there are opportunities to increase productivity and resiliency of business operations by including decentralized but synchronized approaches into current operations.
Winning businesses measure supply chain success by real bottom line Wharton-style finance metrics — working capital reduction, return on assets, economic value-added, cash flow and real revenue growth through customer satisfaction. Not declared victories like, “it took us five years but got the enterprise resource planning system live so let’s take a break and celebrate.”
The leading companies in most every standard industrial code have used supply chain/sales and operations planning (S&OP) to create competitive advantage as measured by these finance metrics. All while the 95 percent of the rest of industry participants have cumulatively had static or worsening financial results, according to this graphic of aggregate data. Based on global GDP metrics, analysts have measured around USD 13 trillion of global inventory buffers that have remained constant or have risen over past decades.
Generally, inventory is held as a buffer of the lead time of demand to the lead time of supply. So my interpretation is, despite all this “marvelous” enterprise and supply chain technology, supply and demand synchronization has not improved over past 20 plus years all while Google and Facebook can proactively sell you antacid as they know what you had or even want to eat for lunch? There has been a serious misallocation of talented IT resources to finesse the trivial while opportunities for business and societal improvement have been ignored.
These supply chain winners have not perfected supply chain technology but use simple tools that work better. These winners have figured out they do not need to outrun the bear, just the other guy. Thus, they use size to indemnify themselves from working capital and inventory exposure, and shift most of this risk to their upstream network. The real question is why, after all these decades of talk and promise, do we not have solutions that span entire supply chain networks providing benefits to the entire supply chain? What can be done to push towards a real supply chain solution that helps all players in a supply chain “outrun the bear?”
The disconnect of enablers
I believe, based on decades of project work in supply chain design and supply chain IT strategy, that there is a tremendous mismatch in selection of appropriate technologies to automate the world’s biggest, most complex decentralized process. Package software/cloud vendors only use centralized technology enablers to provide solutions to the world’s biggest, most complex and high value decentralized business process (supply chain).
Much of our success with clients at DCRA Inc. has come from mapping, modeling and embracing actual human/role-based workflows. Our focus has been to embrace human decision-making but dramatically reduce the cycle times of those workflows to assemble, aggregate and match demand and supply balancing decisions. We have often created, patented and deployed highly decentralized collaborative techniques and processes. We call this “synchronizing the independent.”
However, we have also found scaling these approaches beyond individual client’s successes has been difficult as it is counter to simplified IT architectures preferred by IT departments and package software providers. In the past decade these challenges have been magnified with the moving from on premise technology to virtual cloud AWS hosting. This movement has been confused with enhancing collaboration.
Insert a new enabler: Blockchain decentralized networks
What is encouraging is the growing wave of awareness of blockchain and distributed ledger technology (DLT). The interest in blockchain appears to be providing an avenue for the true scaling of real-world collaboration by embracing decentralized technology, encrypted security and peer-to-peer networking technology. In essence a multi-enterprise business process workflow engine.
We increasingly see blockchain discussed in the context of supply chain but often efforts are focused on replacing existing applications like tracking. In our view this is not where to apply blockchain technology. Our view is that blockchain and DLT has the greatest need and highest return on investment when applied to areas of the larger process not possible to automate using purely centralized technology.
An example we see of this disconnect — despite decades of proposed magical supply chain promises of technologies — as much as 90 percent of all real supply chain planning and plan coordination is done via spreadsheets and email. In particular coordination of S&OP build plans outside of one department or company is almost always communicated by a spreadsheet array via email.
Maybe you have witnessed in your organization’s efforts to deploy real-time “connected planning technology” and efforts to “kill the spreadsheet” in favor of one real-time computing/advanced planning and scheduling instance. Has this worked or just created more underground use of spreadsheets, emails, whiteboards and conference calls?
We see this repeating mantra under different names, a flashing-alarm confirmation of the need for the inclusion of decentralized, distributed technology to support supply chain solutions workflows and begin to embed decision-making into the network, not just at the top of a network. The growing underground of decentralized tech is an acknowledgment that real-people insight at the edge of enterprise is critical to success. In many respects these spreadsheets and emails are a decentralized technology that “synchronizes the independent,” just not one that is scalable or optimal.
Simply put, this and many other examples reflect the stark reality for the inclusion of a more human approach. Companies and individuals in these companies rarely work in real-time as they often must make request and promises that require analysis of self-interest. This is in essence the design of decentralized network technologies.
Our focus has been to document these requests and promises for years and provide cycle time reduction enablers. Increasingly, our work involves scaling these designs with these new blockchain enablers. Reducing cycle times from weeks and month, hours to minutes and seconds, but preserving the independence and profits of business entities and value-add manufacturing.
It is our observation over past three decades that IT solutions which attempt to invalidate this immutable truth, will always fail. Maybe you will see as we see the past decade of poor results despite billions of dollars in investment, and as confirmation of the need for a new approach.
Business models that put value-add manufacturers back in control
If you can imagine this concept becoming somewhat ubiquitous throughout a supply chain network, you can now imagine S&OP becoming an equivalent technology as 3D printing was to additive manufacturing. Instead of demand fulfillment always being prebuilt and stored in a warehouse or shipping container. Instead of a physical inventory buffer, much of this lead time of demand and lead time of supply buffer could be held in planning bills of material and master plans.
When commitments are made some portion, or maybe all, are locked in take-or-pay contracts for production, rapidly pegged up and down the network versus piles of built inventory. This concept is not much different than the reservation of an airline seat or hotel room, but as a physical product.
Enabling of this planned inventory commitment model can lead to breakthrough business models that allow value-add manufacturers to take the lead with customer demand rather than the current wave of giant middlemen distributors/retailers dictating sales by SKU pricing. For example, if we want to create a renaissance in U.S. manufacturing, this would allow a manufacturer to work directly with a customer versus being gated, throttled and controlled by a massive online shopping portal and distributor.
Instead we move into a GDP-liberating era that uses the wonderful technologies we see levered to provide networked-based online advertising used to coordinate diverse, heterogeneous sources of material. These in turn coordinate complex assemblies in manufacturing among construction and all business models in between.
Potential value creation is enormous
I plan to continue sharing our views on why the blockchain wave provides us all an opportunity for scalable answers to the network-side supply chain goal. In general, I open discussions with an explanation of the potential for wealth creation in the today’s global supply chain.
Let me close with some simple macroeconomic metrics from the source I cited earlier. Of a roughly USD 100 trillion global economy, 75 percent of the processes involve supply chain. That is a USD 75 trillion process that holds 13-15 trillion dollars in buffer inventories that despite decades of hyped technology solutions has stayed constant or grown.
It is our hope at DCRA to inspire significant innovation that lowers these inventory buffers through true synchronization of resources across all players in a supply chain network.
One more thing we welcome: debate! Whether you concur that there might be a disconnect of enablers or firmly believe the world will be run from one centralized real-time “wizard” cloud we would love to have that discussion.
From time to time, we invite industry thought leaders, academic experts and partners, to share their opinions and insights on current trends in blockchain to the Blockchain Pulse blog. While the opinions in these blog posts are their own, and do not necessarily reflect the views of IBM, this blog strives to welcome all points of view to the conversation.