The term supply chain implies a connected, linear system that goes from planning to raw materials to manufacturing to a delivered finished product. But in the digital age, that chain needs to morph into an interconnected web, with the customer in the center.
Companies still running on legacy, on-premises supply chain technologies are stuck in that linear model—and the more time that goes by, the more it will cost them as their competition is able to plan more accurately, move more quickly, and operate less expensively.
“The model of supply chain has changed from a very supply-driven functional model to an end-to-end process model starting with the customer,” says Roddy Martin, Oracle vice president of product marketing for supply chain management. “As a result of digitization, the focus has shifted to understanding what the customer wants and being agile enough to meet that demand quickly.”
Many traditional supply chain systems don’t have a demand-driven perspective, he says. But technology is only the beginning: shifting to a new business model requires changes to business processes, IT, infrastructure, talent, organizational design, and metrics to focus on customer service levels rather than performance within each functional area—because each of those areas could be killing its numbers while customer satisfaction is on a downhill slide.
That’s why Oracle’s focus on the overarching cloud architecture across the end-to-end supply chain was so compelling to Martin that he decided to join the company. With the broadest range of supply chain applications, each built from the ground up for the cloud, Oracle is continuing to expand its offerings, he points out.
“I encourage companies to start on the journey to the cloud based on what’s available today and what’s most important to their business so they won’t be left behind,” Martin says.
Those who sit on the sidelines will increasingly feel pain in the following areas—each of which directly affects the company’s bottom line.
1. The Agility Problem
No matter how good your company is at forecasting demand, you’ll never be 100% on target, Martin says—and even if you are extremely accurate, actually meeting demand depends on a range of factors, from planning to procurement of materials to manufacturing to quality to logistics.
Demand forecasting accuracy is usually in the 70% to 80% range, and the best companies can get to 90%. But customers only care about your success rate where they’re concerned. “The key is to build in capabilities to deal with that other 10%,” Martin says.
Companies that are adept at balancing demand and supply can respond quickly to that 10% when they detect it—if they have visibility into both the demand and supply side and have set up their operations to be flexible enough to handle that variation.
But when a company is running on disconnected, inflexible systems and business processes, it doesn’t have the cross-organizational visibility it needs to see where the issues are—or the ability to get multiple functional areas within the supply chain to shift gears and address problems or opportunities quickly. And it will feel that pain on the bottom line.
2. The Information Chase
To effectively meet market demand, a company must be able to see the entirety of its supply chain, use analytics capabilities to understand data and determine the best path forward, and excel in execution, Martin says.
For many companies, visibility is so limited that analytics and execution become too little, too late.
“With heterogeneous architectures that include lots of siloed databases, and with no end-to-end supply chain strategy, the link between visibility and analytics falls apart because you can only analyze the data within each functional silo,” he says. “And then the link into the best way to execute falls apart because the execution systems are also on different databases, with a range of disconnected applications from different vendors.”
These disconnected systems leave supply chain managers chasing and consolidating information, trying to figure out what’s going on—and by the time they get the information together, another obstacle arises.
“In many companies, different divisions spend valuable time debating who has the most accurate information before they make a decision,” Martin says. “When there’s not a single source of truth, the leaders can’t move quickly and with confidence.”
3. Not Ready for New Technologies
Older supply chain systems simply aren’t designed to work with new, data-intensive technologies such as artificial intelligence (AI) and Internet of Things (IoT)—and in the near future, companies that haven’t incorporated these capabilities into key areas of their environment will see their competitors operate more and more efficiently at a lower cost.
“Siloed technology and data go against the possibilities of IoT and AI, which is about breaking down barriers to gain insight and increase efficiency,” Martin says.
Part of every company’s supply chain strategy should include incorporating new technologies into the mix. Of course, the capabilities of AI and IoT can also greatly expand a company’s vision of what is possible—resulting in a strategic vision that wasn’t even conceivable just a short time ago.
Of course, that will depend on taking a holistic approach. “It doesn’t help to have more sophisticated big data predictive analytics to support AI if the execution process is out of sync,” Martin says. “More data just becomes more noise, and that doesn’t provide business value.”
When a company’s supply chain comprises a patchwork of solutions and databases from a range of vendors, security becomes a costly issue.
“There’s some poor person—and likely several—constantly trying to tie that all together and make sure security is in place,” Martin says. “You can’t control that vendor A is going to issue a release that changes certain things that may implicate security, and vendor B does it at a different time, vendor C does it at a different time. IT has to continually track all of that to identify security issues—and that’s a nightmare.”
Reducing the number of vendors and moving to an engineered stack of technologies minimizes those security risks, he adds. “Security risks are embedded in the journey that you decide to take,” Martin says. “If that journey is architected to minimize complexity, you are going to minimize the amount of security risk—but the minute you introduce multiple vendors, you introduce more risk.”
Margaret Harrist is director of content strategy and implementation at Oracle.