The Flat Supply Chain

Is visibility a challenge?


Global Supply Chain — Changing Landscape

Globalization is unstoppable. Regardless of geography, industry focus, size or revenues, companies in the developed world and in developing countries are globalizing to gain new customers and access new markets. According to the ninth-annual global CEO survey done by Pricewaterhousecoopers in 2005, globalization and complexity emerged as the two most powerful and inevitable forces (1). Globalization has created a massive increase in the complexity of supply chains. Companies are vigorously revisiting their supply chain strategies to achieve the desired business objectives. In this article we will discuss the direct cause and effect relationship that complexity has added to the supply chains.

Figure 1: Forces impacting SCM landscape

Transformation to a Flat Supply Chain — Addition of New Chains

Traditionally, supply chains have been linear with companies struggling to integrate internal processes with those of partners and suppliers. The priority is now shifting to how supply chains can be aligned to the changing business dynamics. Supply chains are being flattened as companies source from emerging economies on one hand and seek revenue growth in unchartered international markets on the other.

Let's understand the phenomenon of flat supply chains from a simple example: Traditionally, companies have focused on lean manufacturing, just-in-time (JIT) deliveries, minimal batches and shorter lead times. The strategic intent has always been to move manufacturing and the supply base closer to the customer. But, flat supply chains do not follow this pattern. As businesses spread their core operations across the globe, supply chains are elongated, with customers and manufacturing locations moving in opposite directions. To worsen the matter, supply chains become complex as more players, such as suppliers, distributors, retailers, port operators, custom brokers, logistics service providers, and carrier and forwarding agents, are added.

Flat Supply Chain — The Key Attributes

Following are some of the typical characteristics of a flat supply chain:

  • Increased supply chain length:

  • New dimension to flexibility:

Figure 2: Transformation from "Traditional" to "Flat" supply chain

  • Supply chain risk:
  • Availability, cost and quality of labor

  • Regulatory concerns

  • Reliability of suppliers

Companies are supposed to build capability to mitigate these risks well in time, to achieve the desired business benefits.

  • Information is money:

  • Higher Interdependence:

Is Visibility an Operational Challenge or an Opportunity to Differentiate?

As companies move from internal manufacturing (i.e. controlled by internal teams) to outsourced manufacturing they are faced with a new set of supply chain constraints and trade-offs. As supply chains elongate, the physical movement of goods in the supply chain increases manifold. The situation is worsened in a reverse supply chain scenario where the goods are returned from the customer and sent back to the right supplier, which could be located on a different continent. Consider a simple example where the supply lead times are stretched due to sourcing from a different continent. Obviously, companies would respond to this by building safety stocks in the system, thereby blocking its working capital. This is one simple instance of challenges that can crop up due to supply chains becoming flat.

There are many critical challenges a company faces while transforming itself to a flat supply chain. In addition to process-specific challenges there are few issues such as supply chain cost, quality and compliance that cut across the entire spectrum of the value chain.

There is no one simple solution to all these problems. There are many ways that companies try to respond to these challenges, such as adopting certain set of best practices to achieve the desired performance. Managing supply chain information is also a way out. No matter what, though, supply chain visibility is emerging as a critical differentiator for companies to stay ahead of competition.

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