Who’s Calling The Shots In Your Supply Chain?

supply chainSupply chain management has become a popular term in business over the last 25 years. The term first was coined in 1982 by Keith Oliver, a consultant at Booz Allen Hamilton (now Booz & Company). He defined supply chain management as “the management of upstream and downstream value-added flows of materials, final goods, and related information among suppliers, company, resellers, and final consumers.” However, it wasn’t until much later when the term supply chain management became popular.

As a young engineer working in the manufacturing environment in the early 1990s, I found MRP II or Manufacturing Resources Planning was still the buzzword in the manufacturing space in Australia. Today, supply chain management is found in service industries, food chain, retail, FMCG, airline and even in the banking industries. Traditional logistics companies that provided transport or freight or courier services in the past have now become sophisticated “supply chain solutions providers.”

But what was supply chain’s state of play before 1982? Businesses had obviously survived since the industrial revolution without supply chain management. However, over the last 25 years, many changes such as technology, customer demand or tastes, the global financial crisis and the rise of the BRICs (Brazil, Russia, India and China) and the CIVETS (Cambodia, Indonesia, Vietnam, Egypt, Thailand and South Africa) nations have impacted to the way supply chain is managed and owned. India is now the world’s office with its back-office operations, and China the world’s factory. Thus, it leads to the question “who owns the supply chain?” or “who drives the supply chain bus?”

“supply chain management was born in the manufacturing environment.”

Looking back through the rear view mirror of business operations, supply chain management was born in the manufacturing environment. It started in manufacturing as a material planning function, thus the main players were manufacturing managers and engineers leading that function. However, over the years with the advent of technology,  Material Requirements Planning (MRP) was introduced to manage raw material for production.

Material planning was an art rather than a science. Getting the planning process correct was a trial and error process. Material planning assumed a larger role as production quantities rose due to increased consumer demand in the 1970s. The concept of MRP II or Manufacturing Resources Planning was introduced and the material planning function itself became more of a science. At the same time, manufacturing costs were on the rise, resulting in executives wanting to know more about the dollars manufacturing was spending. Thus, an accountant was brought on board the bus, with the manufacturing manager still in charge of the supply chain.

With MRP II in place, the manufacturing manager, accounts, sales and marketing met twice a week to discuss sales and demand figures. Simultaneously, in the late 1980s and early 1990s manufacturers around the world jumped on the outsourcing bandwagon. In many instances organizations sold off their manufacturing operations to third-party manufacturers and managed the front end of the customer operations. At this point, the operations director was predominantly responsible for the quality and distribution of products from third-party manufacturers. They were still the driver of the supply chain bus but were heavily distracted by sales and marketing, and the accountant.

With the demise of MRP II in the late 90s and the birth of ERP or Enterprise Resources Planning, strategists, analysts and IT professionals also boarded the supply chain bus. The ERP had a lot more to offer to the passengers on the supply chain bus. The supply chain bus was ready to be upgraded to a double-decker! ERP was the first step towards inter-enterprise integration and CRM (customer relationship management) has connected customers to the organization.

On the upstream of the supply chain, ERP allowed material suppliers to be connected electronically to manufacturing operations across the supply chain. With the advent of the Internet in the early 2000s, consumers have become more demanding as they become more educated. Thus customers have now become a passenger with marketing at the wheel of the bus.

By the late 2000s, end-to-end planning was taking off, supported through supply chain integration along with exponential numbers shift in manufacturing to China. With the increased visibility of supply chain operations backed by technology, operations managers and marketing managers began to lose their power as the decisions made in optimizing the supply chain were mainly financial or costs related. Thus, the financial controller or the CFO (chief financial officer) now has significant power—it is expected that the CFO will continue to drive the supply chain bus for some time.

In the very recent times the birth of the chief supply chain officer (CSO) in organizations is becoming common to lead the supply chain function. The chief supply chain officer is a new breed of Executive with core competencies in engineering, operations management, risk management, strategy, security, sustainability and finance.

The CSO will be most likely be an engineer with business qualifications, and not an accountant. The CSO will be also be required to execute integrated business planning (IBP) beyond the boundaries of the organization. It is also expected that the CSO will share information with the supply chain partners to collaboratively launch products and services in the marketplace. Bearing in mind, in the last five years, the supply chain landscape has been revolutionized with disruptive technology, cloud computing, online sales, supply chain visibility systems, volatile business cycles, and short product life cycles.

The shift in the retail landscape and changes in population demographics: smaller families that live in smaller houses that buy smaller quantities. These changes together with Amazon-ization of the distribution channels has changed the way customers now get their products, which puts a great deal of stress on the CSO.

The question: will the CSO take orders from the CFO? The struggle to take control to drive the Supply Chain Bus continues.

Dr. Kumar Mahadevan has extensive operations management, supply chain management and consulting expertise gained across multinational corporations and government organizations. His areas include: business process reengineering; innovation; benchmarking; performance measurement; project/program management and business case development.