Redefining the value from End-to-End Integration

This is an excerpt of the original article. It was written for the March-April 2019 edition of Supply Chain Management Review. The full article is available to current subscribers.

March-April 2019

A few days ago, a colleague sent me “The Death of Supply Chain Management,” an article in the Harvard Business Review. If the title wasn’t enough to grab my attention, the last sentence in the first paragraph had me checking out job openings on LinkedIn: “Within five years to 10 years, the supply chain function may be obsolete, replaced by a smoothly running, selfregulating utility that ….. requires very little human attention.” Read more carefully, what the authors are really arguing is that as NextGen technologies find their place in our organizations, the role of the supply chain manager, including procurement managers, is going to…

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In the developed economies that emerged after World War II, business was centered on the mass production of low-cost, standardized goods to meet burgeoning consumer demand. Efficiency and scale ruled the day. Companies made massive investments far in advance of actual sales, focused narrowly on reducing in-house production costs and watched for opportunities to vertically integrate. Meanwhile, expanding consumer markets protected many manufacturers from the consequences of poor capacity and inventory planning. In that era of mass production, companies could simply afford to be less closely integrated with their supply chain partners.

Of course, the economic, demographic and competitive environment in which we live today is dramatically different than the postwar period. Despite these differences, today’s dominant business model still rests on the assumption that companies can operate within their four walls, taking orders as they come from customers, and expecting suppliers to ensure necessary material and service flows. Research has shown, and industry experience has vividly illustrated, when companies narrowly focus only on their slice of the value creation process—without considering the effects of their decisions on other parts of the supply chain—total supply chain performance suffers.

Lack of supply chain integration can be seen in misguided capacity plans, poorly calibrated production schedules, a cost imbalance for a given supplier, who may even end up out of business, buildup of excess inventory, inefficient use of logistics resources, poor customer service, lost revenues and ultimately diminished returns. And unlike before, companies today face sophisticated and dynamic consumer markets that brutally expose the problems associated with failing to have an end-to-end supply chain integration strategy. On the other hand, the benefits of supply chain integration through total value optimization (TVO) can be substantial, including:

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