In 1961, Jay Forrester formalized the recognition of the bullwhip effect in his book titled, Industrial Dynamics. 55 years later, companies still struggle to deal with it. Increased outsourcing has further contributed to this problem resulting in a lack of visibility from shelves to suppliers and everything in between. Greater product innovation/proliferation, shorter cycle time expectations (from manufacture to delivery), omnichannel strategies, heightened competition, and shorter product life cycles have made supply chain operations extremely complex and exacerbated the bullwhip effect.
Hence, despite all technology innovations and productivity gains, the operating margins for Fortune 500 companies have decreased by 4.3% over the last 15 years. And only 9% of companies say they can assess the impact of supply chain disruption and opportunities within a reasonable time. Businesses must be able to sense and then respond to changes in their supply chains; not the other way around.
The reality is that most supply chain activities are happening outside of the four walls. Therefore, it is important to look at things from an outside-in perspective. Traditional approaches of standalone planning, ERP or point-to-point B2B networks are not effective in managing a multi-enterprise supply chain. These outdated approaches have forced business operations as well as supply chain participants to continue to operate in silos which has resulted in the amplification of the bullwhip effect.
So how can companies remove the bullwhip effect across their end-to-end supply chain?
It starts by leveraging relevant information across their entire supply chain. Then, aligning it in the context of the business processes that extends outside functions and the four walls of the company, and coordinating decision-making throughout the whole supply chain. A supply chain operating network allows leaders to do just that. It facilitates:
- Real-time connectivity for all participants.
- A single “source of truth” for everyone to work off of.
- Ability to sense opportunities and anomalies, enabling faster, smarter decisions.
- Closed-loop monitoring to ensure execution of decisions.
- Ability to reconfigure to adapt to the business changes.
There are three key characteristics to look for in a best-in-class supply chain operating network. One that will be successful in managing a company’s multi-enterprise supply chain:
- Connectivity, Visibility & Collaboration.The foundation of a supply chain operating network has two pieces. The first is a multi-enterprise cloud connectivity network that is highly secure, B2B-enabled and has “packaged” ERP integration. It should have the ability to connect all trading partners, allowing companies to exchange information and work collaboratively and in real-time.The second part of the foundation is a visibility and collaboration layer. Information needs to be translated, sequenced, harmonized, enriched, attributed, synchronized, and contextualized before it can be useful for participants from across the entire supply chain. The Visibility & Collaboration layer provides the foundation for true end-to-end supply chain visibility and orchestration.
- Intelligent supply chain solutions. It’s important to have a broad suite of collaborative supply chain solutions to support mission-critical activities including: supply management, sensing & planning, replenishment & fulfillment, quality & traceability, and supply chain finance. These should be interconnected to ensure data and processes can go back and forth as well as extend across the end-to-end supply chain.
- Analytics & Visualization. Advanced visualization capabilities designed for big data provide real-time operational dashboards enriched with historical insights and drill-down and flexible ad-hoc analysis capabilities. This helps companies achieve an integrated view across their multi-enterprise supply chains.
A Supply Chain Operating Network enables business operations across the end-to-end supply chain. Coordinated supply chain processes across functions and enterprises/tiers is the key to breaking silos, sensing and responding to natural variability without contributing to the bullwhip effect. The result will be a lean and efficient supply chain that can dominate the industry.