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Even mighty elephants can slip and fall
Only The Adaptive Survive
Navi Radjou
Principal Analyst
Forrester Research
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Theme
To cope with volatility firms
need to migrate their static
supply chains to adaptive
supply networks
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Agenda
 Existing supply chain practices and tools
fail to help firms deal with volatility
 Static supply chains are dead.
Long live adaptive supply networks!
 How can firms build adaptive supply
networks?
What’s wrong with today’s supply
chains?
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Supply chains risk collapsing under the
disruptive influence of new business drivers
 Accelerated global outsourcing
 Ever-shrinking product lifecycles
 Fickle demand
These business drivers
are exposing manufacturers to:
Supply/demand mismatches!!
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Plans are insulated from execution reality
Supply Chain
Planning
Supply Chain
Execution
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Glitches -- however minor -- get amplified
throughout the supply chain
Glitch
Thread
manufacturer
(India)
Snowball effect
Knit ter
(Malaysia)
Dyer
(Hong Kong)
Machine
#4711
is down
Clot hing
manufact urer
(Europe)
Lack of t imely
shipment of hot new
model result s in
millions of dollars in
lost sales revenues
4 day
delivery delay
7 day
delivery delay
10 day
delivery delay
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Opportunity costs associated with
supply/demand mismatches
Company
Supply chain exception
Opportunity costs
General Motors In 1996, an 18-day labor strike at a Quarterly earnings reduced
brake supplier factory idled
by $900 million
workers at 26 assembly plants
Boeing
In 1997, two key suppliers failed
Deals lost worth $2.6 billion
to deliver critical parts on time
Sony
Ericsson
Shortage of PlayStation 2
Sony console shipment in US
Graphic chips in 2000
was 50% less than planned
A fire in Philips Electronics’ plant
Lost three market-share points
in New Mexico disrupted supplies
againts Nokia in 2000, and was
of chips for key new handset
forced to exit handset market
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But current supply chain apps can’t help
due to their centralized architecture
OEM’s Planning
Department
Customer
Supplier
Contractor
3PL
• Only fit “Command & Control” organizations
• “Smart” Hub -- “Dumb” Spokes
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Optimization tools don’t make the cut
“How do people in your company manage supply chain
exceptions today?”
No software support
56%
Software provides guidance
28%
Software provides alerts
Software suggests solutions
12%
4%
Base: 25 European companies implementing supply chain
optimization
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Existing supply chain apps ignore the
“physical world”
Internet
computers
93 million
Internet
users
Shop-floor equipment
Trucks and cargo ships
Containers and Pallets
407 million
000,000s
Millions
Billions
Firms must migrate to adaptive
supply networks
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To begin with, it’s no longer a “chain” -It’s a network!
Supplier
OEM
Distributor
In the 50s:
Serial flow across
stovepiped organizations
1990s:
Internal processes begin
to move outward
Today:
A supply network of dynamic
trading relationships
Customer
Eng Cust
Svc
Mfg Dist
Eng
Mfg Dist
Eng
Mfg
Customer
Cust
Svc
Mfg
Dist
Final
A‘bly
Eng
Cust
Ship
Svc
Final
A‘bly
Customer
Dist
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Firms must go beyond efficiency
Competitive
Advantage
Flexibility gains
Efficiency gains
1990
1995
2000
2005
2010
2015
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Firms must migrate to adaptive supply
networks
Business networks of supply
chain partners that use
technology to sense and
respond in a coordinated
fashion to changes in their
environment
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The unique characteristics of an adaptive
supply network
Event-driven
Real-world aware
Adaptive
supply network
Self-regulating
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Supply chains Vs. Adaptive supply networks
In today‘s
supply chains
Optimization focus
In adaptive
supply networks
Efficiency
Efficiency and agility
Input for
decision-making
Historical data
Leading indicators
Problem-solving
Centralized
Manual
Decentralized
Software-agent-assisted
Origin of demand
information
Crystal ball
Point-of-sale data
RFID-tagged items
Cost-cutting
Risk management
Executive
imperative
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To gain flexibility, firms need a closedloop process adaptation strategy
Use feedback loops
to reiterate process
transformation and
reshuffle coping
strategies portfolio
Continuous
Adaptation
Determine and implement
appropriate steps to
mitigate risk or seize
opportunities
Collect and analyze data
on key leading indicators
to assess emerging risks
and opportunities
How can firms build adaptive
supply networks?
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You need sense-and-respond software
 Connect with physical assets
» RFID tags
» Remote device tracking apps
 Manage unplanned exceptions
» Event management tools
 Automate decisions -- and learn
» Software agents
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You need people and process changes to:
 Interpret data accurately -- by analyzing
it collectively
 Respond intelligently to changes -- by
involving partners
 Learn continuously -- by automating
mundane decisions
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Caveat emptor
In particular… Beware of vendors who tell you that
ERP apps are only good for “book-keeping”!!
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Let’s get real: Survival comes first!
4. ADAPTABILITY
Selfactualization
3. FLEXIBILITY
Esteem
Belonging
2. TRANSPARENCY
Safety and Security
Basic Physiological Needs
1. SURVIVAL!!
Maslow’s Hierarchy Of Needs
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Firms’ roadmap to building an adaptive
supply network
Decentralized
decision-making
Centralized
decision-making
Step 3
Adaptive
supply network
Deploy new technologies
like agents and RFID
Step 2
to automate
Flexible
sense-and-respond
supply network
capabilities
Use Web services to
Step 1
establish “two-way”
Transparent
conversation with your
supply network
trading partners -- to
enable collaborative
Establish visibility into
problem-solving and
factory-floor activities
decision-making
and strengthen
connectivity with “weakest”
Traditional
links in the supply network
Supply chain
operations
Low-exposure
To variability
High-exposure
To variability
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Summary
 Uncertainty is here to stay
 Aggressive firms will beat the competition
by making their supply networks adaptive
 Firms must crawl and walk before they
can run in adaptive supply networks
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Thank you
Navi Radjou
+1 617/613-6119
[email protected]
www.forrester.com