The Copernican Revolution in Supply Chain

For decades we have viewed our world inside-out -placing our own business at the center of the universe, looking out to immediate suppliers and immediate customers next and everyone else only as an afterthought.  All our models, processes and systems have been designed -at least implicitly- with this point of view.  This point-of-view has resulted in several limitations in terms of operational reach, point-to-point integration, decision support, and ability to coordinate planning and execution across trading partners.  The fact is that our businesses operate within a highly inteconnected value network.

Looking at things from a perspective that is not aligned to their underlying nature creates huge complexity.  This has been the case with looking at supply chains from the enterprise – inside out. 

There is a whole new way of looking at our supply chain network.   I believe we should take an outside-in network view, one that puts the consumer at the center.  This perspective not only overcomes past limitations but also simplifies the picture and paves the way to achieve breakthrough performance for all parties in the entire value network.

Putting the consumer at the center of the universe

Today’s consumer is informed, connected, and fickle.  One misstep and she can dump you in a click – and all her friends may know about it instantly.  Delighting her requires the entire value network to work in lock-step.

If we pin our focus on the consumer, then we are forced to take an outside-in perspective.   We now look at our business and our trading partners as part of a multi-enterprise network that must work together to serve the consumer.

This change of perspective has profound ramifications.

Instead of having the enterprise as a central actor looking outwards, the supply chain and trading partner relationships are conceived as a network of equal partners with the consumer being the central focus.

In another post, I have described in more detail the criteria and advantage of true network environments.   A true consumer-centric network aligns all parties and all their planning and execution around consumer’s anticipated needs and purchase behavior.

So, how do we get multiple independent businesses to execute together in lock-step?  This is where Control Towers as Systems of Engagment come in.

Systems of Engagement

The Control Tower now acts not merely as a layer of visibility or analytics, but as a System of Engagement (SOE), coordinating execution over the many Systems of Record (SOR) across trading partners. I call this stage in Control Tower evolution, "Control Tower 3.0".  (Control Tower 1.0 and 2.0 are discussed in a previous post, Rise of Supply Chain Control Towers.)

System of Engagement (graphic)

According to Forrester, Systems of Engagement focus on people not Processes.  These new systems harness a perfect storm of mobile, social, cloud, and big data innovation to deliver apps and smart products directly in the context of the daily lives and real-time workflows of customers, partners, and employees.  The Control Tower orchestrates all actors (people and things) across multiple companies in real time to serve the consumer.

Multi-Party Orchestration

Here are some of the ways Control Tower 3.0 enables multi-party orchestration.

Consumer-Driven Objective

The entire network has visibility to the end customer, and so can respond immediately to resolve problems as they begin to emerge, ensuring supply meets demand as efficiently as possible. Whether it is an unexpected spike or lull in demand, distributors, suppliers and logistics service providers can reallocate inventory and resources to take advantage of the changing conditions. The key here is that all parities are aligned around a shared objective to serve the consumer. This delivers value to all, even as individual parties may optimize their own goals. It brings an overarching shared objective and enables network-wide optimization as opposed to sub-optimized silos working in isolation.

Multi-party workflows

With SOR, it is practically impossible to support workflows that go across multiple companies. A SOE takes the orchestration out of the individual SORs and moves it up to SOE layer which provides a single version of truth and seamless orchestration across all parties and companies. It is a digital network that brings buyer, seller, mover and other parties together to deliver the product to the consumer efficiently, while understanding the constraints of each party and connecting many systems of record.

Joint Transaction and Execution Services

Systems of Engagement also serve as transaction and execution backbone. Transactions can now be multi-party in nature and persisted in systems of record as required. The buying company’s purchase order and the selling company’s sales order are now seen as simply two views of the same transaction – like two sides of the same coin.

Real Time and Agile

The system is real-time and provides data based on actual conditions, allowing all parties to react and resolve issues faster. For example, a supplier is aware as soon as an alert is triggered about a potential stock out. Thus the entire network is more agile and responsive to shifts in demand and to changes in supply. In general, the sooner an issue is addressed, the cheaper the resolution, so this represents big opportunity to cut costs.

In summary, here are the fundamental differences that characterize Control Tower 3.0:

Traditional Approach
(Control Tower 1.0 & 2.0)

Control Tower 3.0

Visibility and control focused on one enterprise Visibility and control focused on consumer across all parties
Inside out Outside in
SORs integrated to each other in chain or hub-spoke arrangements SOE network layer across SORs, people and things
Single enterprise workflows and processes that exchange data with immediate supplier or customer at best Multi-enterprise workflows and process orchestration
Serial, batch execution, one party at a time Concurrent, real time, execution across multiple parties

Control Tower 3.0 represents a leap in advancement in control towers. It is virtually impossible to achieve with traditional software, as it requires a multi-party network with a sophisticated and secure permissions framework.  Some leading companies have achieved this level of maturity in their journey and are already seeing significant gains.

Value of consumer driven networks

The advantages of being consumer-driven in a real-time, network environment dwarf those of the gains in sub-optimized, inside-out silos characterizing 1.0 and 2.0.

This immediately simplifies IT integration as you connect once to the network and are connected to all parties. With a real-time, single version of the truth, you gain clarity and are able to make better, more profitable decisions. You can transact, execute and collaborate across your entire supply network.

Nucleus Research found that multi-enterprise networks can reduce overall costs by 3 to 5%.  Nucleus also found:

“Customers averaged 56% increase in inventory turns and 38 percent decrease in safety stock holdings. Customers benefit from greater visibility, coordination, and optimization within their extended supply chain across multiple tiers of trading partners and suppliers.”
Nucleus Research, “The Real Value of Value Chain Networks,” Seth Lippincott, April 2017

Copernicus triggered a revolution in astronomy and science by offering a new perspective of our place in the universe.  Similarly, taking an outside-in consumer centric view is changing how we view business in an hyper-connected world.  It is a new perspective for a brave new digital world.  You might say it is not new at all.  We should have always viewed the consumer at the center.  Well, that's my point. smiley

Note: This post is adapted from a post first published on Supply Chain Beyond.

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