It should come as no surprise that supply chain is a determinant of business success. In today's digitally driven marketplace, almost nothing moves without the supply chain. Thanks to the industrial internet of things, the cloud, the smart factory and other trending technologies, businesses face increasing complexity in their supply chain.
Keeping up with the speed of changes in this era of digitized and globalized business has become more difficult than ever before. As the landscape evolves, supply chains need to adapt to stay ahead of the curve. It is a company's ability to manage complexity that will define how well they can compete and succeed.
Although the importance of supply chain management is clear for modern economies, there are many myths and misconceptions that plague the practice. If you manufacture or sell products, or just provide a service, it's time to check conventional wisdom. View the SlideShare below to explore six of the most persistent and stubborn supply chain management myths.
Viewing supply chain as merely purchasing is an outdated interpretation that ignores the increasingly strategic role that supply chain plays in the modern digital enterprise. As the classic Harvard Business Review article “Purchasing Must Become Supply Management” cautions, viewing supply chain activities with an attitude of “purchasing as usual” makes an organization vulnerable to competitive pressure. Rather, supply chain must involve enhanced strategic awareness, greater flexibility and stronger entrepreneurial thinking. Indeed, today’s supply chain professionals are managing these and countless other key functions:
For every six supply chain management jobs that are open today, there is only one qualified candidate, according to Supply and Demand Chain Executive. Furthermore, 60 million baby boomers will exit the workforce by 2025, spreading the talent gap even wider. Despite all of this opportunity, students and young professionals continue to view supply chain as an unattractive career prospect.
There are many reasons for this misconception: First, when people hear the term “supply chain,” many don’t know what it is. Others think of stereotypes such as low-skill, physically draining manual labor. This is compounded by the fact that only a handful of universities offer supply chain majors. As Jabil Vice President of Global Supply Chain Joe McBeth says, “A graduating engineer typically wouldn’t think, ‘I’m going to get into supply chain.’
Fortunately, digital supply chain, Industry 4.0 and the internet of things are poised to entice the next generation of industry professionals to be a part of the modern, innovative factory floor. Specifically, according to Michigan State University’s Eli Broad College of Business, there are four key reasons a career in supply chain management is well worth exploring:
A few decades ago, most supply chain decisions were based on institutional knowledge and industry experience, rather than proven data. While this human insight is vital, trying to manage the complexity of modern supply chains based on gut instinct alone is shortsighted.
The good news is that today’s digital technology is making it easier than ever to capitalize on big data from networked machines, connected warehouses, real-time sales reports and more. This enables supply chain professionals to capture demand, supplier capacity, and delivery schedule and transaction data in real time; analyze and turn it into meaningful information; and predict the next big thing or avoid the next big pitfall.
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“No other business has the problems we have.” You hear this all the time, but the truth is, supply chain managers by and large experience very similar challenges. Realizing this fact is empowering — as is talking with fellow professionals who have experienced and overcome similar issues.
No business has an isolated supply chain in today’s global market. Just because you “only make cars” doesn’t mean you’re not competing for the same base resources and services as a health care organization. And just because your company hasn’t been forced to operate in the global marketplace yet, don’t think that day won’t come.
If you’re facing difficulty related to frequent stockouts, customer service demands, forecasting, inventory accuracy, productivity, frequent schedule changes or expedites, risk management, collaboration or the hunt for great supply chain talent, you are far from alone.
Many supply chain managers are fixated on cost control and, therefore, do all they can to keep inventories as low as possible. Yet this can increase financial risk. For instance, say a single-sourced part required to complete the production of a subassembly you make and sell for $1,000 is part of a final product that sells for $100,000. Assuming the weighted average cost of capital is usually about 1-2 percent per month, the potential loss of revenue and profit from one lost sale dwarfs the inventory cost when you consider the total profit of the final product.
While it’s true that holding a high level of inventory ties up business funds that could be used in other areas, it’s important to remember that high inventory isn’t always a bad thing — and often it’s a good sign of growth ahead.
For example, if an organization increases inventories because it is confident about the economy and forecasts higher demand, then that is a truly wonderful thing. Furthermore, when comparing the extremes of a stockout versus and holding more inventory than you need, the former is definitely worse.
When you can’t fulfill demand, you disappoint customers and risk alienating them and losing them to competitors forever. Other valid reasons for higher inventories include cost advantages of buying in bulk, protecting your company from order delays, more effective in-store merchandising and heightened supply chain control.
Again, too many supply chain professionals fixate on cost control above all else. But what about profit and revenue? Aren’t they more important? How about seeing new market trends before your competitors and fulfilling that demand before anyone else? Perhaps most of all, shouldn’t supply chain management be about simple value creation?
According to the report “Creating Value Through Procurement and Sourcing Efforts in Integrated Supply Chains,” supply chain’s goal has shifted from how to obtain the lowest unit price toward a more holistic value approach. “Supply chain leaders are focused on the best value arrangements, understanding that total cost doesn’t always paint the full picture.”
The report says supply chain professionals can add value through ideation with suppliers; via improved service offerings; and by gaining access to innovative technologies, such as the intelligent digital supply chain. As stated in the APICS magazine article “Building a Digital Supply Chain the Right Way,” “Every supply chain function, process and system must be involved in the race to unlock the benefits of digitization.” The story goes on to say that companies that embrace digital supply chain capabilities can enhance value and revenue by creating new business models, improving productivity, exploiting analytics for innovation and transforming their workforces.
Dispelling the most common misconceptions is the first step in achieving supply chain excellence.