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Supply Chain Visibility Has a Problem

There have been quite a bit of supply chain media attention lately regarding how supply chain managers want more transparency and more visibility into the extended supply chain. There seems to be a sentiment that if only they could see what was going on, they could make better decisions, integrate operations more efficiently, and collaborate across firm boundaries.

Firms like Procter and Gamble show the power and possibility of sharing information in supply chains. P&G engages in continuous planning and execution. Supply chain information isn’t updated periodically in weekly, monthly, or quarterly forecasts and plans—plans are continuously responding to information and operations adapt when required.

Supply chain transparency has been the unachievable future for decades, yet technology makes it likely to be achievable, at least in pockets where it pays off the most, as P&G shows. Of course, like many innovations, actually achieving the benefits requires planning and changing of processes.

The Low Hurdle: There are two major hurdles that companies will have to overcome to harvest the benefits of supply chain transparency. One is avoiding the “authoritarian regime” mindset. Bigger companies tend to throw their weight around because adding more information to track, and adding more players into the decision-making process, will slow decision-making to a crawl. It will lead to gridlock due to conflicting goals, it will slow agility and responsiveness. Research shows a massive drop-off in consensus-making when you go from five to six people involved in making a decision, a fact that your personal experience likely corroborates. In order to overcome this hurdle and achieve deep transparency, supply chain relationships will need to focus on the process of planning and executing, most especially on the power of incentives to contribute to the relationship and how to create healthy conflict and resolution. This will require changes to contracts and supplier performance evaluation processes. Expect to see more use of approaches like performance-based and Vested outsourcing.

The High Hurdle: The second hurdle results from international relationships, and where the first hurdle will be overcome relatively quickly by supply chain managers willing to adapt and innovate, the second lies outside their control. Currently, we exist in a global world that is dependent on cross-border data flows that has adopted no inter-operability standards. Data is governed by trade treaties. The world has yet to adopt a framework for dealing with data flows, despite the fact that data flows have increased exponentially for decades. This can be a real issue between entities with strong data industries such as the EU, China, and the US, and an even bigger issue for smaller or developing countries. Lack of binding and coherent rules for cross-border data flows holds back progress and, especially for smaller and poorer countries, creates another hurdle to joining world trade—which also means it’s more difficult for US companies to enter their markets. Clearly, data is unique and isn’t adequately covered by trade treaties.

As a last thought, there’s no doubt that supply chain managers have the ability to leap the low hurdle. Unfortunately, until the high hurdle of cross-border data interoperability is overcome, true across-the-board supply chain transparency will continue to be elusive above a regional level. Even though improving data interoperability and binding standards is most likely one of the global economy’s greatest prizes, attention seems likely to stay focused on trade tensions between the US and China, and the EU’s economic malaise.

With the trade deficit shrinking by its most since 2009 and the U.S. Treasury windfall from tariffs, it seems unlikely the next round of trade talks will alleviate US-China tensions. In other words, there’s little political incentive to engage in cooperative innovation, at least in the short run. Let’s hope that supply chain managers adopt a more long-term view than some of our political leaders.