Over the last two decades, the global competitive environment has changed drastically in terms of its complexity and dynamism. And there are no signs that the rate of change is going to decline anytime soon. To reflect this new reality, the nature of supply chain relationships needs to change fundamentally.
Customers demand a larger variety of products. They want to be able to customize products to their own individual needs. They want new products to be introduced more frequently. New ways of communicating and an abundance of information have increased customers’ awareness of environmental sustainability and social responsibility. All of which has resulted in customer demand becoming more volatile and unpredictable. At the same time, production and process technologies change more rapidly.
The supply side doesn’t look much different. Increased outsourcing and sourcing from suppliers dispersed around the globe result in more complex supply network structures and new dynamics. This, along with natural disasters, political change, and financial crises makes supply less stable and disruptions more severe.
Practitioner studies have repeatedly accentuated the relevance of these critical issues, for example:
- Deloitte: Mastering complexity in global manufacturing
- PwC and the MIT Forum for Supply Chain Innovation: Making the right risk decisions to strengthen operations performance
How do enterprises currently design and manage their relationships internally among functions and externally with supply chain members? Do those relationships match the complex and dynamic reality of today’s competitive environment? The answer is usually ‘no’. In an ongoing pursuit of operational efficiency and cost reduction, manufacturers have adopted lean practices throughout their supply chains. They have aggressively driven extensive cost reduction and process optimisation programs with suppliers. They have kept suppliers at arm’s length, emphasizing the transactional nature of the relationships.
In 2004, Hau L. Lee – Discussed the perils of efficiency in his well-known article on the Triple-A Supply Chain.
Looking at the reality of today’s complex and dynamic environment, it becomes clear that companies need to think way beyond cost reduction and operational efficiency. They need to think about risk mitigation and response. They need to think about getting the right innovation at the right time. They need to think about about building supply chains that are both environmentally sustainable and socially responsible. Failing to do so could severely hamper their ability to survive and gain a competitive edge over their rivals.
It is not a secret anymore that it is supply chains that compete against each other, not individual businesses. In this regard, companies have to rethink the way they design and manage relationships. They have to figure out new ways of collaborating and communicating, both internally among their different functions and externally with key supply chain partners, well beyond the immediate first tier. This can only work with fundamentally changed relationships that build on openness and trust and aim at sharing the pain as well as the gain. Supply chain relationships have to move beyond mere operational efficiency and cost reduction towards agility, responsiveness, innovativeness, and social and environmental responsibility.
Having in mind the changing competitive landscape, changing the nature of supply chain relationships seems obvious and self-evident. However, it is not an easy endeavour to engage in. Assessing all the different competencies along the supply chain and connecting internal functions as well as external partners in a meaningful way to tap into those competencies remains a challenging task for most enterprises.
Within the scope of this blog, I will elaborate on several issues that evolve around the changing nature of supply chain relationships.
- Why is there a need for a new perspective on relationship management and success and how does it look like?
- What is the role that performance measures, targets and incentives play?
- Why is it crucial to consider the nuances of human behaviour?
- How do social preferences and culture factor into relationships among individuals and among corporations along the supply chain?
- Are supply chain integration and supply chain agility a myth or a reality?
- Is there a dichotomy between competition and cooperation or is there something in between?
- Does it make sense for a company to control every part of its supply network or rather let it emerge?
- What is the role that context plays in managing supply chain relationships?
- How do market intelligence, big data, data science, and predictive analytics fit in?
- How do boundary-spanning functions like procurement contribute to successful supply chain relationships?
I look forward to engaging with you the readers of this blog on such crucial issues. Drop your details below to get these upcoming pieces directly to your inbox… See you around!