Among the lasting impacts of the COVID-19 pandemic: More people grasp the importance – and fragility – of global supply chains.
Flashback to spring 2020: As shutdowns and border closures became widespread, the internet was suddenly flush with supply chain experts explaining the lack of toilet paper on store shelves. The importance of effective supply chain management recently became apparent in a far more serious manner during the later stages of the pandemic, when millions of doses of the Johnson & Johnson vaccine were ruined because of quality problems at a manufacturing plant in Baltimore, Maryland.
The latter example reveals how problems in a supply chain can quite literally impact lives, says Mike Landry, supply chain management global service line lead at Genpact. COVID-19 is first and foremost a global health crisis. It has also been one of the biggest disruptions to global supply chains in history, Landry says, impacting availability and sales of everything from appliances to apparel to furniture and more.
Effective supply chain management is crucial to individuals, businesses, and governments alike. The availability of your favorite brand of TP is not actually a life-and-death matter during a global pandemic, even if some social media feeds might have led you to think otherwise. But the safe and secure distribution of medicines and other healthcare needs, safety equipment, food, and many other items are absolutely vital to people’s lives.
Of course, that’s always true – it’s not just a pandemic-related issue. Landry points to another recent reminder (that also set social media ablaze) of deeply interconnected dependencies in any global supply chain: The Ever Given freight ship that got stuck in the Suez Canal and temporarily ground a significant portion of global maritime shipping traffic to a halt.
“Ever Given is a perfect example of how things can go devastatingly wrong if one part of a supply chain fails,” Landry says.
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Where supply chain meets IT and business priorities
Business and technology leaders of all stripes might find themselves pulled into a conversation (if not an actual meeting or strategy session) about supply chain management. IT leaders are no exception, especially given the integral role technology plays in all facets of business and government. Many of the strategic priorities on the minds of CIOs and other IT leaders – think data and analytics, AI and machine learning, blockchain, and security, to name a handful of examples – are likewise playing increasing roles in supply chain planning and management.
“Organizations are increasingly implementing end-to-end supply chain visibility platforms that integrate systems across the extended enterprise,” Landry says. “These solutions often include business analytics, machine learning, and artificial intelligence, which streamline the supply chain process and improve on ways to source, manufacture, and deliver products to consumers faster and more predictable.”
(The term “supply chain” has its own particular context within IT, too, in that it is often used to describe the continuous, end-to-end process of building, deploying, and managing software. While many of the principles remain the same, this article will focus on supply chain management overall rather than software specifically.)
So what is supply chain management? Let’s dig into some clear-cut definitions of the term that you can use. Then, we’ll revisit the Ever Given story and other examples that illustrate why this discipline is as important as ever.
What is supply chain management? 4 definitions
- “Supply chain management (SCM) is the control and handling of everything needed to deliver a product to a customer – from the initial design of new product, through purchasing and receiving materials into the warehouse and the manufacturing of goods, to transportation and distribution to the final customer, and much more. Because this is such an expansive and complex undertaking, each partner or ‘link’ in the chain – from supplier to final logistics partner – must seamlessly integrate into a coordinated and responsive system, allowing them to communicate and work together to create efficiencies, manage risk, and adapt quickly to change.”—Richard Howells, VP of solution management for digital supply chain at SAP
- “In its simplest form, supply chain management is the process in which businesses manage the supply and demand of their product(s). It includes everything from the materials the company needs to source for the development of its own products, to manufacturing and packaging and how the products are ultimately shipped and delivered to consumers.” —Mike Landry, supply chain management global service line lead at Genpact
- “Supply chains are flows of goods and services downstream, flows of money upstream, and flows of information both ways. Supply chain management means taking charge of those flows in order to satisfy demand and increase efficiency. Downstream has information about demand because it is closer to the consumers, while upstream has information about capacity because it is closer to production.” —Chris Nicholson, CEO of Pathmind
- “Supply chain management is the management of all of the requirements that ensure products and services are available to end customers when they are needed. For the technology industry, this includes coordination with hundreds or thousands of suppliers for all of the components to build products such as telecommunications infrastructure equipment, medical devices, and smart devices. Supply chain management orchestrates the flow of goods, services, money, and information between businesses to ensure that end customers can purchase services and products on demand.” —Tom Pendergrass, VP of customer supply chain management, Sanmina
Here’s a distillation of these more robust definitions: Supply chain management is the discipline of ensuring that a business can deliver its products when and where a customer wants them.
So when the paper products aisles of grocery and big-box stores looked like they’d been ransacked in a scene from a post-apocalyptic movie, that was a symptom of a major supply chain issue. As Landry earlier noted, this was a disruption of historic proportions. But essentially demand surged past manufacturers’ supply – and their capacity to produce more supply.
Why is supply chain management important?
Supply chain management is crucial across virtually any industry. Let’s look at five reasons why supply chain management is a mission-critical discipline.
1. Supply chain management balances demand and capacity
Again, the pandemic created historic challenges for global supply chains - abnormal conditions. But even in “normal” times, supply chain management is fundamental to ensuring that there’s a balance between demand for a product and the capacity to fulfill that demand.
“The whole challenge of supply chain management is to coordinate between demand and capacity so that you can ensure that just enough goods are made and delivered. You want to avoid excess inventory as well as out-of-stock situations,” Nicholson says. “Of course, the goals of efficiency have to be balanced with a margin of safety, as the last year has taught us.”
“Just enough” is the holy grail of supply chain management: Too much inventory and too much capacity (or not enough of either) can crush the bottom line and create lots of unhappy customers. IT leaders might see this through a cloud lens: Hybrid cloud environments, for example, can enable IT teams to ensure they can handle demand spikes without over-provisioning infrastructure that sits idle most days of the year.
That’s basically the goal of effective supply chain management: How do we ensure that we can reliably and securely deliver what our customers need, when they need it, without wasting resources or creating other problems?
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2. Supply chain management keeps profits up and prices down
Effective supply chain management is a profit maximizer – music to any CEO or board member’s ears. It’s also what keeps prices from spiraling to a point where the market for a particular product would decline or disappear. Supply chain management is a prerequisite to efficient manufacturing, according to Robert Fink, chief strategy officer at Surgere. And inefficient manufacturing is anathema in the business world.
“Production costs increase, as does the cost to [the] consumer,” Fink says. “Also, production equivalent to demand cannot be met, and [the] end product cannot be produced at a price the market will bear.”
This is probably the plainest, simplest way to describe the importance of supply chain management: Shoddy supply chain management is expensive, whether that takes the form of increased production costs, lower profits, lost sales, or prohibitively high prices.
“Supply chain management is very important because it gives manufacturers and retailers an opportunity to reduce total supply chain cost, which increases profits,” says Joseph Giranda, director of commercial relations at CFR Rinkens. “This also helps keep pricing competitive for consumers.”
While supply chain management is one of those disciplines that might sound boring, it’s intrinsic to the higher-profile parts of the business, such as revenues, profits, and customer experience.
“The better you get at supply chain management, the more you can drive down costs while keeping the end customers happy,” Nicholson of Pathmind says. “The last year has shown us what the stakes are in supply chain management. If you plan poorly or don’t have a resilient supply chain, you can’t fulfill your promises to customers, and your costs explode when you are forced to scramble to fill in the gaps."
3. A supply chain is only as strong as its weakest link
One of the greatest supply chain management challenges is how many moving parts and pieces any given supply chain might entail. Supply chains are only as strong as their weakest or least-reliable component: One glitch can not only throw everything offline, but have cascading effects.
The Ever Given story is a good example of this issue. Landry from Genpact notes that 19 million ships carrying roughly 1 billion tons of cargo passed through the Suez Canal in 2020. (In layperson’s terms: That’s a lot.) So not only was Ever Given itself probably carrying both finished products and components of other unfinished products (such as, say, car parts for vehicle manufacturers), it ended up blocking all other passage through the canal.
“The delay of the supplies and parts being delivered causes a trickle-down effect on how soon products can ultimately be delivered to customers, which impacts [a] business’ revenues and the entire global economy,” Landry says. “But in addition to the products on Ever Given causing supply chain problems, its blockage of the Suez Canal halted other cargo ships from traveling through the canal for days, thereby causing a ripple effect of late shipments that impacted the overall economy.”
It was a dramatic, high-profile example of a supply chain breakdown, but a pertinent reminder of how just about every aspect of a supply chain has the potential to bring the entire operation down, at least temporarily.
4. Quality and continuous improvement depend on supply chain management
While you can boil supply chain management down to the balance between supply and demand, that may be too reductive in reality. No one wants a perfect supply-demand harmony for a crummy product; crumminess will spoil demand at some point.
“Quality is a key priority for any product and can very quickly strengthen or weaken end customer demand,” says Pendergrass from Sanmina.
This is another area where CIOs and other IT leaders can nod their heads knowingly, whether thinking about external customers or internal users of the systems and services their teams deliver. Consider how Pendergrass breaks down quality assurance and continuous improvement in a supply chain management context, then connect the dots to IT:
“Behind the scenes, supplier quality engineers work with manufacturers to understand the internal quality performance in manufacturing facilities. Issues that originate in the manufacturing process have the potential to become reliability issues in end-customer applications. Test engineering is essential to ensuring that manufacturing defects are identified early in the assembly process and the root cause of these problems is eliminated. Reliability engineering continuously monitors the potential performance of products in field applications and takes steps to improve it. Supplier quality engineers also work with manufacturers to drive continuous improvements that improve quality and make supply chains more efficient for the production of future products.”
This is quite similar to the language, culture, and processes of DevOps and Site Reliability Engineering (SRE), among other IT corollaries.
5. Without supply chain management, the global economy would sputter to a halt
Talk about a “last but not least” reason: The global economy would go kaput without supply chain management.“Nearly everything in a home or workplace is there due to a supply chain, with hundreds of millions of jobs around the world linked to these activities,” says Howell from SAP. “From consumer goods to critical surgical equipment, everything travels through a supply chain.”
The pandemic has underlined this reality in bright red ink. That may lead to long-term improvements in supply chains to help them better hold up under dramatic conditions.
“The past year showed consumers the importance of supply chain management: when facilities were closed and borders shut down, suppliers and manufacturers were unable to source essential materials and the supplies we depend on, like toilet paper and hand sanitizer, failed to arrive in stores,” Howells says. “Companies, governments, and consumers are now taking a closer look at global supply chains and the technologies that run them, to learn from previous mistakes and ensure those delays never happen again.”
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