Supply chain management has one main objective: To offer the best value to the consumers. What we mean by “value” is the quality of products, fast and on time delivery, and handling the post-purchase needs. The race to achieve these goals coupled with the development of e-commerce and increased online shopping led to supply chains becoming more and more complex. Manufacturers have multiple suppliers, called Tier 1 Suppliers, which receive supplies from Tier 2 suppliers. Tier 2 suppliers have Tier 3 suppliers for the manufacturer, and the list goes on. If we think about it from a manufacturer’s perspective, the supply chain is even more complex since we also include multiple tiers of customers (please see Figure 1 for a sample supply chain).
Figure 1: A sample supply chain for a manufacturer with two tiers of suppliers, and two tiers of customers
By using advanced technologies and digitalization, organizations are working to improve their internal operations as well as communication and coordination with external parties (e.g., suppliers, distributors, customers). Considering the complexity of supply chains, decision-makers need to have accurate and real-time information about critical parameters such as their current inventory levels, supplier’s inventory levels, status of the products along the supply chain, demand of the customer, and so on. In other words, organizations need to have visibility into their operations and share data with each other in real-time.
In traditional supply chain management, companies use past data to forecast the demand for their products, which can lead to excess inventory or unmet customer demand depending on the actual demand quantity. On the other hand, if the organizations know exactly how many units the Tier 1 customers need, how many units the Tier 1 suppliers have available for shipment, and if these are available in real-time, the planning of production and deliveries can be significantly improved.
With increased visibility between different tiers and partners, companies not only have the ability to track the products as they move from the supplier to customer, but also can collect data to improve future operations. For example, if a retailer expects a delivery on a particular day and it does not arrive, they can check its status by using an identifying number, like the order number. When an order is placed, it is possible to view if the supplier accepted the order along with details such date and time of approval. As the number of transactions grow, organizations can draw insights into order lead times, and possible delays and disruptions that can help them better plan their productions.
Another benefit of increased visibility is related to disruption management. As we all witnessed during the start and peak times of the COVID-19 pandemic, a disruption in one part of the supply chain can quickly cascade into the rest of the chain. Although it may not be possible to completely eliminate the risk of disruptions, visibility across the tiers of a supply chain can offer significant benefits to reduce the negative impacts on meeting the customer demand. That is, if the manufacturer knows that there is a disruption at a Tier 1 supplier and they will not be able to supply the required quantity, then ordering from another supplier can minimize the delays in production and delivering the orders to the customer.
It may be difficult to predict how much more the technology will advance and how it will impact the supply chains. More manufacturers may transform their production facilities into a lights-out factory (a form where the human involvement is minimal or non-existent, and machines/robots perform the operations with remote human monitoring and control). Drones or autonomous robots delivering orders may become more common in the next few years. Physical retail stores may slowly disappear and online shopping can be the only option for most products… What we know is that companies that do not adopt these technologies, focus on the big picture of the supply chain, and increase visibility with the partners will not survive in the competition. Although advanced predictive models may assist in forecasting demand, it will not suffice to meet customer expectations. A successful supply chain is one where all partners inform each other and focus on the end goal: Providing the best value to the consumer.
