By David Ross
The shockwaves sent reverberating through the U.S. economy by Hurricane Katrina dramatically highlighted how dependent the nation was on the timely and efficient delivery of goods and services. For a vital few weeks, all sectors of the economy held their breath to see how devastating the impact would be. Supply chain professionals everywhere in the country were quick to meet the challenge by exploring new ways to bypass the potential bottlenecks the devastation had seemed to portend for water, rail and truck traffic in the very center of the nation. However, the disaster dramatically illustrated the need to architect supply chains agile enough to meet the next major disruption, whether it be a terrorist attack, a catastrophe at a key port or another natural event. Simply, how could supply chains ensure that they could maintain the necessary velocity of goods and services not only to meet the potential of threats posed by disrupting events, but also to effectively manage the supply network in an era of Lean and super efficiency?
Understanding Supply Chain Velocity
From the very beginnings of modern production and distribution management, companies faced the fundamental problem of how to optimize the dispersion of goods and services to the marketplace. When producers and customers are in close proximity to each other, demand signals can be quickly received by suppliers, and products and services in turn promptly delivered to the customer. As the time and distance separating production and the point of consumption increase, however, companies must in turn increase the size of the supply network and the inventories within it if customer serviceability is to be maintained and enhanced. It can be said that as the supply channel expands, the importance of managing the velocity of the goods and services that flow through it correspondingly grows in importance.
The analogy most often used to describe supply chain velocity is that of a pipeline through which product flows. As a pipeline grows longer to serve an ever-widening market, the volume of goods flowing through it correspondingly expands. Several serious problems can arise in managing pipeline flows as they grow longer and longer. To begin with, as inventory expands, so does the costs of ordering, storing and moving it. As if ballooning pipeline investment and potential obsolescence were not enough, the longer the pipeline, the more it becomes subject to disruption stemming from the possibility of an expanding number of weak points as the fabric of the supply chain continuum is stretched too thin. Finally, as changes in demand or product/service variety accelerate, the longer the pipeline, the longer will be the time necessary to respond to those changes. If supply chains are to become more adaptable to manage such events, it stands to reason that one of the fundamental requirements is that they be able to increase the velocity of the end-to-end flow of their products and services.
Unfortunately in today's hyper-competitive environment, very few companies have a true working knowledge of the velocity of their supply pipelines. While a small minority of companies, such as Dell, Home Depot and Wal-Mart, base competitive advantage on knowing and managing the velocity of goods in their pipelines, most are inwardly focused and have extremely limited visibility to what is occurring in their supply chains. In addition, this lack of visibility to channel velocity has been rendered even more difficult a challenge as companies increase their dependence on outsourcing, product lifecycles continue to shrink, and declining customer loyalties and increasing service levels demand even greater supply chain flexibility.