The Changing Shape of the Supply Chain

Some time ago, I was stuck in a meeting. Not exactly The Meeting From Hell but definitely somewhere on the outskirts, like maybe Erebus, or Tartarus. Naturally enough, I decided to use the time more meaningfully, and began doodling.

Procurement, operations, distribution: those are the three elements of a supply chain strategy, according to what we tell our students.

I drew them vertically, for a change. I’m trying to get away from showing supply chains as going from left to right, but it’s a difficult habit to break: I spent years simulating supply chains, and the software packages we used were all designed to show products as flowing from left to right – a paradigm that doesn’t do us much good, really. Workpieces flowing from top to bottom fit the language of the supply chain much better: “upstream” and “downstream”, vertical integration and so on.

Following the “big three” I added an after-sales service component. Many modern supply chains include this, and thus far we’re not looking at anything that doesn’t appear in Porter’s Value Chain… if stood on its pointy tip. (Again, getting away from the left-to-right paradigm.)

So we’ve got a natural flow: gravity-assisted through procurement, operations, distribution and after-sales service. Next, I left a gap, which I called “uncontrolled life”. This represents the part of the life of a product where it has passed beyond any formal support, but remains useful to somebody. Like a car that has passed to its second or third owner, who decides that the declining value of the vehicle means it no longer deserves the premium demanded by the dealership: an independent garage works out cheaper on a per-hour basis and may provide access to ‘clone’ or salvaged parts.

Sooner or later, though, a product becomes too broken or too obsolete to be of use. It reaches the end of its life… but the supply chain may feature an ‘end of life’ phase where components or materials are salvaged. This is a growth area – not least because of legislation that establishes extended producer responsibility.

That first diagram offers a summary of the present-day position, perhaps, but it wasn’t always this way. For example, after-sales service is a relatively new concept that could only really take off once standardisation made it possible to sell spare parts.

I started wondering about how things have changed over the years (yes, the meeting I was in offered ample time for such reflections…) and by the time I’d thought it through I had a set of distinct ages illustrated, in a not-very-scientific analysis of the relative importance of the different components of the supply chain. You can see a neat version of my next doodle here:

Supply Chain Trends. Maybe.

Before humans, there was procurement and use – the way a chimp might find and keep a stone, so as to crack nuts. In a few cases, there may have been simple operations too, such as stripping the leaves and bark off a twig before it’s used to fish termites out of their mound.

Termites – it’s what’s for dinner. [Photo: BBC / Emma Napper]

In prehistory (defined as human activity after the invention of stone tools, but before the development of writing) we added distribution: the idea that you might share something with somebody else. Also, the range of operations that might be performed is expanded by human ingenuity: we were shaping tools, making mud bricks, curing hides and so on. At this point, ’end of life’ doesn’t feature at all; you just leave waste and worn out items wherever they happen to fall. Moving on into ancient history, this changes. For the first time, some forms of waste have value. If a broken item is made from copper or bronze it can be melted down and made into something else: recycling has arrived. Distribution also increases in importance in this era, for example Bronze Age Cyprus shipping copper to the Near East and Egypt, and returning with commodities such as papyrus and wool.

Technologies change, and empires rise and fall, but the relative importance of procurement, operations and so on doesn’t appear to change until the industrial revolution, when operations become particularly significant. For the first time, having an innovative means of production is more important than having access to the raw materials. (These are accessed more readily as a result of advancements in trade and navigation.)

I decided that mass production deserved to be considered as an era in its own right, beginning about a century ago. Again, we see a growth in the relative importance of operations – plus the arrival of the service component, which begins a squeeze on the uncontrolled life element.

In the information age – our own era – operations has declined in importance, because there’s more outsourcing (procurement increases in importance) and production increasingly involves alliances. Similarly, responsibility for the distribution function is shared with third-party logistics (3PL) partners. Growth in services is observed as companies look to establish a continuing revenue stream, and there is an increased focus on the end-of-life, the two combining to further limit the uncontrolled life element.

And what does the future hold? I think it’s reasonable to assume that end-of-life issues will continue to increase in importance. Outsourcing will grow; alliances and partnerships of all kinds, too – and the uncontrolled life of products will be further squeezed via business models based on leasing rather than outright ownership.

I’m not saying I have this 100% right, and the situation pertaining in a specific industry may be different… but it’s interesting to see how things have changed, isn’t it?

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