Supply Chain Velocity: How to Get There
Many companies seek to achieve a high velocity supply chain. The concept conjures up visions of goods moving from suppliers to consumers at ever faster speeds. The term took hold in the 1990s with many conferences using it as an attractive tagline and presentation title. But what exactly does supply chain velocity mean? I’ll give my view here, along with what I think are the foundational elements to achieving a high velocity supply chain.
High school physics introduces the concept of velocity, which is defined as speed with a direction. If we apply this simple definition to the supply chain, it means we are trying to achieve a high rate of speed while moving in a specific direction. Thus, velocity is not just about moving fast, it’s about moving fast with a specific purpose. But what sets this purpose or direction? It starts with the company business plan, which defines the means by which to achieve a certain level of profitability by capturing customers in specific markets with specific products and services. This business plan flows down to specific organizational plans that are then executed. These plans establish the direction component of velocity.
As supply chain management has evolved, new ideas and concepts are constantly appearing in the discourse. In many cases, old concepts are dusted off and re-introduced as something new. Demand volatility (see my previous blog) in recent years has caused the discourse to gravitate towards speed, with the implication that planning is no longer important. My view is that this is not a question of OR, but a question of AND.
In the context of the above definition of velocity, planning sets a direction; speed tells you how fast you will get there. Speed is critical, but if it is not tied closely to a direction, it may just get you to the wrong place faster. Responsiveness requires both planning and speed. If something requires a fast response, how do I know how to respond? How do I know the direction? The plan provides the answer to these questions.
High velocity supply chains are characterized by three capabilities in their chain management processes:
- Robust planning which provides an optimized and constrained picture aligned to the business plan
- Continuous visibility of demand and supply
- Destination reliability through codified and intelligent playbooks (for an example of an intelligent playbook, see my previous Supply Chain Quarterly titled A Rudder for Course Correction).
The first one provides the direction component of velocity; the second and third provide the speed component. In this sense, supply chain management processes are evolving to continuous control loops. In a control loop, there is an objective function (the plan), continuous sensing to understand deviations from the objective function (feedback loop), and fast and smart algorithms to run to close any deviations (speed). The best supply chain companies are evolving their management processes from discrete, sequential processes to continuous control loops.
The implications of this are far reaching. The most fundamental implication is that it drives the need for business process synchronization across the dimensions of function and time. Business synchronization is fundamentally different from the data-driven integration currently in place at many companies. We are currently working with many of the world’s leading supply chains to drive the business synchronization necessary to achieve continuous control loops, thus enabling high velocity. These efforts are aimed at not just reducing time latency in the information chain, but ensuring goal/objective function alignment across business processes. (I will address the fundamentals of business synchronization in a future blog).