Supply Chain Evolution: Survival of the Fittest

Jun 21, 2006 8:08 PM  By

There has been much debate in the logistics community about the lifespan of supply chain networks under the pressure of rapidly changing global markets. Some experts have gone as far as saying that very few networks are good for more than about twelve months.

While the notion that few networks are serviceable for more than a year is broadly accurate, the real question is how to balance the turbulence of the marketplace and still provide sufficient foresight for service/cost planning. You must consider issues of agility, flexibility, scalability, and adaptation to a changing business environment including rising fuel costs. Most supply chain practitioners would agree that a one-year planning horizon provides limited opportunity for an acceptable return-on-investment in the processes, systems, infrastructure, and people needed for operational efficiency.

While some might interpret this phenomenon as a catalyst for the use of “flexible” third-party logistics providers (3PLs), these operators are equally impaired by the lack of economic horizon visibility since “flexible” 3PL contracts are by nature short-term and expensive. After all, third-party logistics operators rely on forecast/cost models as much as their customers.

Evolutionary change in the supply chain is inevitable and corporate Darwinism is a fact; only the fittest of organizations will survive. The reality is that the rate of change has increased exponentially in recent years. As a result, time is in fact currency in today’s supply chain theater. Organizations that ignore change are doomed to perish rapidly. Those that react to change will find themselves managing crises, fighting fires, and withering slowly. Companies that plan for change will smooth operational turbulence and mitigate risk. And those with the foresight to drive change will achieve strategic advantage and tactical superiority.

There is no such thing as an optimized supply chain. The entire exercise is akin to aiming at a moving target and as a result, we must focus our efforts on finding balance between value, quality, service, cost, risk, and myriad other factors. The object is not necessarily to be “optimized,” a far too lofty and costly goal. You simply need to be closer to being optimized than your competitors. The gap between your current supply chain performance and that which is possible is the weapon that a savvy competitor will turn against you.

Maintaining such equilibrium does require a commitment to continuous improvement and periodic evaluation of the supply chain efficacy is certainly one of the fundamental requirements. As part of this ongoing effort, perhaps the most important element is sensitivity testing of the key variables in the model. What if fuel prices rise? What if a shift from less-than-truckload (LTL) occurs? What if order profiles change? What if cubic velocity by SKU migrates? Only by modeling the answers to such questions (independently and in aggregate) can clear some of the fog from the crystal ball.

Lawrence Dean Shemesh is president of Marlton, NJ-based consultancy OPSdesign Consulting.