If we outsource critical business activities and create a wider, more complex supply/demand network the question of how that network should be managed and controlled becomes crucial.
There is always a danger that through outsourcing an activity we lose control of it.
A classic example of the consequences of such a case is that of the Boeing 787, the so-called ‘Dreamliner' aeroplane.
Boeing outsourced the design and manufacture of almost every part of the aircraft – the wings, the fuselage, the landing gear, the tail fin, the engines – to globally dispersed specialist businesses.
There were something like 50 of those subcontractors who were responsible for the design, manufacture and delivery of their part of the aircraft – Boeing then doing the final assembly.
Perhaps not surprisingly things went badly wrong.
Whilst there were a number of reasons for these issues it seemed that the fundamental cause was the lack of control that Boeing was able to exert across the supply chain.
In those critical early stages of the project there was no ‘control tower' in place to provide visibility across the extended supply chain.
Boeing had failed to understand the fundamental principle that whilst a company might outsource the execution of activities they should never outsource their control.
For dispersed global supply/demand networks to operate in a reliable and coordinated way a high level of what might be termed ‘orchestration' is clearly required.
The focal firm – Boeing in the case just cited – needs to be firmly in the driving seat utilizing information based upon as near to real-time visibility across the supply chain as can be achieved.
The keys to successful supply chain orchestration are control and coordination – just like the conductor of an orchestra bringing together many different musicians playing diverse instruments to produce a polished and integrated interpretation of the score.
In the same way it can be argued that the role of the supply chain manager is ultimately to utilize the information and intelligence flowing into the control tower to enable the many entities across the supply/demand network to work together seamlessly and synchronously.
The challenge is to understand what information is required to ensure an effective control tower operation and to find ways to capture that information in a timely way.
Capturing and interpreting information from multiple sources in real time significantly enhances the ability to control the network and to create a more responsive and resilient capability.
This new normal, as some have termed it, contrasts with the more stable business environment that previous generations of supply chain managers were accustomed to.
Today supply chain risk – in the sense of exposure to disruption – is probably as great as it ever has been.
Many forces have been at work in the opening decades of the 21st century to create these disruptive conditions.
Catastrophic climate-related events seem to be on the increase and the impact of geopolitical actions can be considerable.
The global financial crisis of 2008/9 and the Covid-19 pandemic of 2020 created seismic economic shocks.
Whilst these forces are clearly beyond the control of the individual business there have also been a number of decisions taken by managers that perhaps have exacerbated the effect of these external forces.
Often this has led to reduced levels of safety stock and less spare capacity.
In its extreme version there will be no buffers available – either of inventory or capacity – to absorb unexpected shocks.
In other words, rather than having several suppliers for the same item they have chosen to create what some have termed ‘strategic' suppliers where those suppliers are solely responsible for the supply of an item.
One of the biggest changes in business thinking over the last 50 years has been the view that organizations should focus on their core competencies and outsource everything else.
Previously many companies were ‘vertically' integrated, often owning upstream supply facilities and/or downstream distribution outlets.
Today some companies are closer to a ‘virtual' business model where all non-core activities have been outsourced to specialist third-party providers.
As a result dependency upon external entities has increased dramatically.
There has been a dramatic shift away from the predominantly ‘local-for-local' manufacturing and marketing strategies of the past.
Now as a result of offshore sourcing, manufacturing and assembly – often driven by a search for lower cost – supply chains extend from one side of the globe to the other.
As a result there is an exposure to a diversity of risk sources such as political actions, exchange-rate changes and longer and more variable lead times.
In an attempt to capture economies of scale many companies have rationalized their production facilities and centralized their distribution.
Thus, instead of many smaller and often local factories and warehouses serving local markets, those companies now seek to serve global markets from fewer, bigger facilities.
Often too the factories are ‘focused', ie producing a limited number of products or variants but in greater volume.
As a result the risk to the system as a whole increases if one of those facilities becomes inoperable.
Underpinning each of the above trends is a strong economic logic.
However, put them all together and a potent recipe for potential supply chain vulnerability emerges.
As we previously observed many companies have taken decisions on supply chain design based on a search for lower costs and greater efficiency – with a consequential reduction in their resilience.
Resistance refers to the robustness of the supply chain which enables it to cope with the shocks that inevitably will impact it.
Think of it as a feature akin to a shock absorber in a vehicle.
We might hit a rut in the road whilst driving a car but the effect on the driver and the passengers is mitigated by the shock absorber.
Recovery relates to the ability of the supply chain to get back on its feet quickly after the occurrence of a disruptive event.
For example, if a key supplier were no longer able to supply us – for whatever reason – could we rapidly access an alternative source?