Your Supply Chain Applications Can’t Handle Disruption

disruptionCOVID-19 catalyzed rapidly shifting commerce models that were reshaping how goods and services were procured and delivered. In a matter of weeks, entire countries came to a near standstill as governments issued mandatory stay-at-home orders to help slow the spread of the novel coronavirus. Highways and roads became desolate, and e-commerce became vital as the consumer’s appetite, both literally and figuratively, could now, in most cases, only be satisfied via online shopping with home deliveries. In just a few short months, a myriad of retailers that primarily relied on customer foot traffic to their brick-and-mortar locations had filed for bankruptcy.

Before the onset of COVID-19, bankruptcies were accelerating at an alarming pace across the retail sector, seemingly without prejudice. Forever 21 filed for bankruptcy in September of 2019 due in part to supply chain problems that contributed to customer perception of declining product quality. Two years earlier, the bankruptcy filed by massive retailer Toys “R” Us came as the company had been famously late to the e-commerce game. In a last-ditch attempt to adapt, they signed a 10-year deal with Amazon. Unwittingly, this accelerated the demise of the iconic toy retailer as by outsourcing sales and customer fulfillment, the brand became increasingly irrelevant.

Now in late summer 2020, each week brings the news of venerable companies struggling as a result of the continuing pandemic. Both Brooks Brothers and Lord & Taylor, brands born in 1818 and 1826 respectively, have filed for bankruptcy. They join a growing list of other large retail groups that faltered as they were unable to adapt business practices in the face of massive disruption and an immediate shift to online-only buying.

In 2017, Credit Suisse found that the average lifespan of an S&P 500 company fell to under 20 years, down from about 60 years in the 1950s. As Credit Suisse noted, the disruptive force of technology is killing off older companies earlier and at a much faster rate than decades ago. While disruption is nothing new, the speed, complexity, and global nature of it are. As this pace of change continues to accelerate, the supply chain must accelerate at a similar pace while it plays catch up in terms of agility and resiliency.

Many supply chains are stuck in an outdated paradigm as they adopted the supply chain operations reference, or SCOR model, as a guide on how to organize their supply chains. The SCOR model breaks up the supply chain into five categories; Plan, Source, Make, Deliver, and Return, with the overarching goals of creating consistency and efficiency within those five functions. Over the last 25 years, consultants and software applications have created applications that map to those functions to optimize them.

Many companies have a transportation management system (TMS), a warehouse management system (WMS), a demand planning system, supply planning systems, and sourcing systems. These systems were designed to standardize business processes and optimize these single functions. In an environment where a rapid change to multiple functions is required to execute new business strategies in response to changing conditions, these systems often stand as barriers vs. aids in accelerating change.

If a company has to make a decision that takes into account simple trade-offs between sourcing options, production costs, inventory carrying costs, or transportation costs, what does it do? None of those systems mentioned above were built to help the company make those trade-off decisions. In those cases, a staggering amount of companies still turn to Microsoft Excel.

In the meantime, the data that makes up the supply chain is spread across tens, if not hundreds, of systems in an enterprise, including ERP systems, planning and execution systems, order management systems, spreadsheets, and desktops. That’s a complex IT landscape, and changing all of that to create one single system of record for the supply chain is a 100-year project, and few companies have the appetite or bandwidth to take it on.

The result is that enterprises don’t have a single system of reference for data that governs and defines the supply chain. Ask yourself where you would find the information to answer these questions: What are my inventory policies? What are my flows between manufacturing plants, regional distribution centers, and customer fulfillment centers? What are my lead times, and what lead times are we even talking about? Something as fundamental as a lead time can exist in five different systems with five different assumptions. That’s why many companies have an Excel bypass for everything.

Despite 30 years of supply chain software investments, we’ve clearly missed the mark because Excel continues to be the world’s most dominant supply chain decision-making tool. Part of the reason for that is due to the inherent flexibility and usability of Excel. How many people do you know who have ever been to a formal training class for Excel?  Yet almost anyone you ask in any business role knows how to use it and sees it as imperative as a necessary job skill, nearly as essential as speaking or writing.

Certainly, packaged applications will remain, playing a vital role in the IT landscape, driving adherence to established processes like order to cash or procure to pay. When there’s a lot of disruption happening, pure packaged applications fall short, as they don’t allow for the degrees of freedom and flexibility that is needed to stay aligned with changing business climate. It is at that point that many companies end up going back to Excel, and that cycle is repeated over and over again.

Breaking through this decade’s old paradigm requires applications to evolve and adapt to stay aligned with the respective supply chains that they govern. Not only do applications need to adapt while governing, they also need to predict and prescribe actions that leaders can take to adjust and adapt at the speed of business.

Speed, adaptability and the capacity to collaborate across the enterprise are more essential than ever. For businesses to adapt and thrive in an increasingly uncertain environment, they must consider systems that can connect across data sources to identify challenges, unlock new opportunities, and generate the types of insights decision-makers need to confidently achieve the best outcome. Most of the data you need to make a better decision already exists in your current systems. But it takes an outside-in approach to unlock its true potential. The path to faster, smarter, and more certain decisions exists within platforms that can interpret that data through advanced algorithms and AI to deliver personalized, hyper-contextual experiences to the people you trust to make the right decisions about the future of your enterprise.

Matt Tichon is the Vice President of industry Strategy at LLamasoft, where he helps customers and prospects overcome various supply chain strategy, planning and design challenges.  Prior to working at LLamasoft, Matt held positions at Oracle, Clariant Corporation and Arby’s. He has more than 20 years of experience in manufacturing/retail, consulting and technology and demonstrates success in supply chain transformation. Matt holds a BSBA in Logistics

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