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Most companies will see their supply chain velocity continue to increase, rely far less on forecasts and much more on responsive, demand-based supply chains, incorporate high levels of product customization and tailoring, and embrace related supply chain process changes. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

Below is an except from the groundbreaking report on integrated supply chain planning and execution written by SCDigest’s research organization Chief Supply Chain Officer (CSCO) Insights. The full report can be downloaded here: Next Generation Supply Chain Management: The Integration of Planning and Execution.

This except provides a concise description of the third phase in the evolution to highly integrated planning and execution – moving to “Sense and Respond” supply chain networks (see graphic later in the article.)

Phases I (The Basics) and II (The Real-Time Supply Chain) take care of the fundamentals and move companies much closer to a state of integrated supply chain planning and execution.  But getting to a true “sense and respond” network, in which operational and even tactical planning blur with execution processes, is where the supply chain is ultimately headed – and faster than many may realize.

What is close to available today and will become commonplace in the future is the ability to see in near-real time a complete picture of supply and demand data, across multiple levels – from supplier’s supplier to customer’s customer.  The view will also not be “point-to-point” but “many-to-many,” requiring collaboration and synchronization around supply chain execution and tactical planning – in near real-time.

But it is a lot more than just technology, of course – it is completion of the journey from a forecast-driven supply chain, in which companies build supply chains around trying to predict demand, to a customer-driven one that is organized to respond to demand with lightning speed.’

While the picture will look somewhat different from industry to industry, “build to stock” will ultimately give way to “build or customize to demand” in virtually every one of them.  Long production runs and costly changeovers will give way to much more flexible factories that can rapidly switch gears to cost effectively make short runs of product based on the latest near real-time demand data. Procter & Gamble has publicly stated its goal of being able to make every SKU every day in its plants, recognizing the cost of the weeks of inventory its pipeline still holds after years of attention and improvement in the forecast-driven model.

But this model cannot be implemented by a company stand-alone. It must be built with an intense level of visibility and collaboration. 

As Nick LaHowchic (former supply chain executive at The Limited Brands) and Dr. Don Bowersox of Michigan State University recently wrote, if information “was shared fluidly between participating firms in a channel, then a great deal of “anticipation” would be replaced with facts. In a collaborative environment, it would not be necessary to forecast what others are planning to do or what they are planning to buy.” This is the critical point: visibility and information sharing will allow trading partners to simply sense and respond, within defined relationship rules.  Of course, this vision of the integrated supply chain has been there all along – it was many years ago that the vision of a sweater being sold in a store in the US would trigger a sheep being shorn somewhere in New Zealand.

(Supply Chain Trends and Issues Article - Continued Below)

The difference is that in addition to a continuous maturing of the supply chain, the technology to make this responsiveness happen is very close to being here: web-based visibility and collaboration, sensory networks, integrated supply chain software suites, real-time analytics, mobile devices, Service Oriented Architectures, and other technologies.

Those changes will be accelerated by the powerful advances in computer technology. The cost for an entry level Cray supercomputer, for example, has fallen to just $25,000 and will drop further. What this means is that companies will be able to rerun operational plans at exponentially greater speed, based on real-time data on supply and demand.  Using this type of computing power, one retailer is now able to run its store replenishment plan in just 17 seconds – a computing job that that used to take 6 hours to run. Another manufacturer is reoptimizing manufacturing schedules throughout the day in a way that was never possible with less computer horse power.

There will be different models of sense and respond networks. An increasing number of companies will eventually use true build-to-order models, but others will use hybrid models that include postponement and related strategies.  But most will see their supply chain velocity continue to increase, rely far less on forecasts and much more on responsive, demand-based supply chains, incorporate high levels of product customization and tailoring, and embrace related supply chain process changes.

These business and technology changes will beget organizational and functional changes as well.  Collaboration externally must be supported by collaboration internally, as the concept of “teams” supplants the concept of “functions.” In other words, at the end of this road is a substantially different and incredibly more powerful supply chain world. In many cases it will require a “supply chain transformation” that will dramatically improve cost and customer service and bring the supply chain in much closer contact to end customers.

That will be a very good place to be.

What would you add to our description of "Sense and Respond" networks? How long will it be before companies can truly get there? Let us know your thoughts at the Feedback button below.

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