Three Paradigm Shifts That Will Shape Future Supply Chains

As we approach this year’s Supply Chain Insights Summit, once again, Lora Cecere has asked me to share my thoughts about what supply chains of the future might look like. I believe that three fundamental paradigm shifts are already underway that will shape future supply chains: a shift to personalization, the rise of intelligent processes, and an emerging adaptable approach to managing uncertainty.

The pivot from “demand driven” to the customer

To-date, the entire supply chain has been orchestrated to service “demand” while keeping inventory and logistics costs down.  In another blog post, I have discussed how the digital consumer has changed everything.  In the next decade, the focus will shift from the forecasting product consumption to anticipating customer needs, catering to personal preferences and engaging customers through unique paths to purchase.  Offers will be co-created with the customer and the supply chain will be configured dynamically to fulfill these personalized orders. Today, any discussion of “last mile” is more about logistics and delivery.  As digital convergences with physical, it is not hard to imagine that products will be personalized, or even manufactured entirely, very close to the customer.  Managing these “selfie supply chains” will require a fundamentally different approach where information flow is optimized together with product flow.

Always-on and intelligent processes

To keep up with the digital consumer, we will move from batch and sequential processes for planning and execution to continuous, concurrent and intelligent processes.  Today, most companies have separate functions for planning and execution operating in silos.  Optimized plans are made first, then handed over to other departments for execution. I envision a future where planning and execution will happen concurrently and continuously.  This will move us to being always-on and connected to smart decision support as you execute.  When a mobile app provides you directions to a destination as you drive, you are planning, executing, monitoring and course-correcting –all at the same time.  Sometimes, you are driving to a destination and the app reports that traffic patterns have changed such that an alternative route just became faster.  With rapid advances in big data, machine learning and cloud computing occurring now, this paradigm will become the norm in supply chain planning and execution as well.

Adaptable approach to managing risk

How we cope with risk and uncertainty is also changing from a rigid “best plan” driven mindset to a much more dynamic, risk aware, resilient, self-learning and adaptable approach.  Rather than striving for a best plan upfront, we are moving to a mindset of planning scenarios and contingencies anticipating likely risks and then letting the plan take shape as uncertainties unfold.

Let us take the simple problem of ordering replenishments, for instance.  Today, we estimate forecast error and supply lead time variability over the long run and then use stochastic optimization to do multi-echelon inventory optimization to determine safety stock targets. A new paradigm is emerging, where, in the future, we will automatically look at each replenishment decision individually.  We will weigh cost and benefit trade-offs as uncertainty evolves based on incremental evidence.  We will trigger individual replenishments when current projections of stock levels combined with current assessments of demand and supply risk cross tipping points in favor of making the replenishment.  These uncertainty estimates will look at not only things like recent sales patterns, on-hand and planned receipts but also evolving indicators such as consumer sentiment, weather, recent delivery performance by suppliers and projections of delays or risk along supply lanes.

What do you think?

I believe these three paradigm shifts will fundamentally change not only the questions we ask but also how we arrive the answers related to supply chain planning and execution decisions. I would love to learn what you think.  Do you see these trends as well?  What other important trends are you seeing from your vantage point?  I look forward to engaging discussions at the conference.