make supply chains more vulnerable and turbulent.
Demand in nearly every industrial sector was becoming
more volatile, product life-cycles shorter, and competition
more intense, they wrote in the article, “Mitigating Supply
Chain Risk Through Improved Confidence.” Supply chains
had become more subject to disruption from external factors such as wars or strikes and internal factors like shifts in
strategy. Lean practices that minimize inventory, the outsourcing of key components of the supply chain, and
reliance on fewer suppliers across far-flung networks added
to the risk.
That risk has only become greater. “I think it is clear that
supply chain vulnerability has increased significantly in
recent years,” Christopher wrote in an e-mail reply to a DC
VELOCITY query. “The reasons are partly to do with economic and geopolitical uncertainty, but mainly due to
increased volatility and turbulence on both the demand
side and the supply side. Everybody I meet tells me that it is
much harder to run the business on the basis of a forecast
and that long-range planning is a thing of the past. Instead,
we have to build in the capability to react to the unexpected—this is what I believe resilience in a supply chain context is all about.”
Nari Viswanathan, vice president and principal analyst
for the Aberdeen Group’s Supply Chain Management
Practice and co-author of a supply chain visibility study
published earlier this year, said in a recent interview that
while supply chain managers may strive to shave inventories, improve data flows, and compress lead times, several
factors are working against them. Fewer suppliers can mean
greater risk of supply disruption. Geographic expansion
across China, India, other parts of Asia, and Eastern Europe
can extend lead times, which leads to greater amounts of
inventory in the overall system, again creating greater complexity and greater risk.
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The risk spiral
Now, another development threatens to further complicate
supply chains, and thus increase the need for visibility.
Supply chains that once were one-way channels are fast
becoming multidirectional as countries like China—
perhaps China especially—rapidly develop a large consumer
market.
Lee and Christopher argued back in 2004 that one of the
keys to mitigating the risk caused by complex supply chains
lay in developing end-to-end visibility. Visibility helps
eliminate one of the major causes of supply chain volatility, what they called the risk spiral—i.e., if a participant in a
supply chain lacks confidence in, say, when goods will
arrive, the response may be to add safety stock, which in
turn creates added pressure on production and extends
lead times, resulting in a further erosion of confidence. The
lack of confidence is exacerbated as longer distances and
additional outsourced participants add time to material
flow and reduce visibility of any participant in the supply
chain to the activities of others.
“The key to improved supply chain visibility is shared
information among supply chain members,” they wrote. “If
information between supply chain members is shared, its
power increases significantly. This is because shared information reduces uncertainty and thus reduces the need for
safety stock.”
Christopher believes the need for stronger collaboration
is greater than ever. “One of the paradoxes of the trend to
outsourcing and offshoring is that whilst it may have
reduced costs (although not always), it has tended to
increase uncertainty through a loss of control and visibility,” he contends. “Ultimately, I would argue that the two key
elements in reducing uncertainty and increasing resilience
are improved visibility and improved responsiveness—in
other words, the ability to see things sooner and then to
respond more quickly once that information is received.
These things can only be achieved if we are able to have
much higher levels of cooperative working across the supply chain.”
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Looking beyond the walls
In the Aberdeen study, “Integrated Demand-Supply
Networks: Five Steps to Gaining Visibility and Control,”
Viswanathan and coauthor Viktoriya Sadlovska set out to
