In supply chain we must trust

In an interconnected world, a business is only as strong as the weakest link in its supply chain. Or, put another way, it's only as strong as the weakest link in its supply network. The key ingredient in those partnerships is trust, which is a “must have” factor for intra and inter supply networks within and between organizations in a market ecosystem. The integrity of a supply network is one where commitments are honored and form the conduit to growth. “It comes as no surprise then that trust is a vital ingredient when it comes to running a business or safeguarding an industry,” observed Stanley Chia in PharmaTimes Online. He added that “a recent survey of CEOs in the pharmaceutical industry found that trust is of growing importance.”

How do you achieve and maintain supply chain trust? Broadly speaking, the following 4 dimensions need to be in place:
1) Technology
2) Collaboration
3) Metrics
4) Supply Chain Consultants/Solution Providers

While collaboration, metrics and consultants and solution providers are important, in our experience, technology is playing a bigger role than ever in establishing trust. That's because traditional supply chain models are being replaced by a digital technology infrastructure to provide customers, suppliers, internal collaborators and management with a platform for the collection and enablement of dependable data. We refer to these as Ecosystem Commerce Platforms, or ECPs. These platforms are being made possible because Industry 4.0 techniques such as IoT, cloud, smart labels, cognitive analytics and analytics-driven dashboards are coming of age. These techniques secure the integrity of the supply network/ecosystem which then translates to reliability.

A foundation for physical and digital trust
With the emergence of ECPs, our attention is focused on blockchain. In our opinion, blockchain provides the foundation for the data integrity that is revolutionizing the supply network trust factor. The characteristics of the technology include an open source, decentralized, distributed database for storing transaction information. Blockchain allows and ECP to hold timestamped transactions that are secured by public-key cryptography and then verified and shared by the ecosystem commerce network community.

Once an element is appended to the blockchain, it cannot be altered, turning a blockchain into an immutable record of past activity. This technology allows two parties to transact directly while eliminating intermediaries. The result is that transactions become considerably more transparent to the concerned parties than those provided by centralized systems or traditional supply chains. As a result, transactions are executed without relying on a third party, but on the distributed trust based on the consensus of the network. Reliable information available in the ecosystem network among suppliers, customers, design providers, manufacturers and growers needs to ensure business continuity and growth as the expectations on product origins is paramount.

Another key factor enabled by blockchain is traceability. A critical component of effective supply network management is reducing the risk and successfully managing recalls or returns which can devastate a company's performance and brand. “U.S. wholesalers encounter nearly 60 million returns annually, accounting for an estimated $7 billion, according to SAP,” Jonathan Katz wrote on SmartIndustry.com. The ability to manage recalls and effectively achieve confidence and trust to end consumers is a key requirement.

Know when to compete and when to collaborate
Collaboration is not just the application of technology to share information between two or more entities and internal communication but represents a mindset. It starts with CEOs and senior managers driving collaboration as a strategy which will lead to a win-win situation between companies and within the company. At the same time, senior leaders must allocate sufficient resources to make collaborations work. Middle managers and associates need to trust senior management on collaboration. If not, it may be “lost in translation” as it passes down through the organization.

Regardless whether it's internal or external collaboration, the first hurdle to clear is trust. Are the benefits shared fairly? Is the collaboration going to last for a long time? Does management give credit when due? The questions are endless. To make collaboration trust work, the below mentioned factors are crucial considerations:

1) Long term collaboration and not for short term gains.
2) Build collaboration models based on strength areas of companies not on weaknesses as this would imply a one way benefit model.
3) Carefully select collaborative partners based on value creating benefits.
4) Apply appropriate technology that is defined and agreed to by the participants.
5) Invest in people and infrastructure – consider emerging ECP providers, especially if you are using them for EDI and/or sourcing or other interenterprise processes.
6) Measure collaboration performance with a balanced scorecard approach.
7) Share benefits willingly.

As James Cooke aptly put it “Trust can only come about when all companies in a supply chain share in not just the rewards but the risks, too. Without trust there can be no sharing of critical information. And without sharing critical information, it’s impossible for a supply chain to become borderless and win in the global economy today and in the future.” Metrics are about demonstrating value. Supply chain executives need a set of specific supply network indices to demonstrate supply network value which is a derivative of both intra and inter organizational trust. “While supply chain excellence is not the sole factor in a company’s success, it is hard for a company to succeed without it,” says Lora Cecere. “Ensuring success requires a nuanced approach that uses a portfolio of carefully selected metrics.”

How do you measure up?
Company performance metrics such as revenue growth, return on capital investment, cash flow and profitability ride heavily on the strength of the strength of an organization's supply network. Effective demand planning and demand-supply matching enhances revenue growth and proper calibration of capital/asset utilization. Demonstrating the ability to manage market needs and capacity is essential.

Supply network management is also a balancing act, especially with inventory management. Holding high levels of inventory can impact the bottom line and cash flow. Reduced inventory levels can create mayhem on customer service levels and response time. As such, a connected end-to-end supply network ecosystem involving the end customer will enable a more resilient supply chain with trust being the core factor leveraging technology and collaboration. Hence a set of supply network indices have to be developed for measurement of improvement with a clear starting point. Year-on-year measurements and corrective actions, when necessary, are crucial for sustainable supply network excellence.

Once an organization's mission and objectives are penned, execution is of paramount importance. Often staff have to juggle multiple roles between day to day activities and supply chain projects or initiatives. Many have attempted to minimize resources and failed. The project is delayed and sometimes never completed. Other reasons for failure include lack of specific knowledge and/or experience, insufficient exposure to analytical and decision support tools, internal politics, and lack of know-how on best practices among others. Supply chain consultants and solution providers can add significant value here supported by a business case of benefits and lower risk vs costs of consultants.

Putting trust in your supply network
Trust exists only if there is a belief that value is gained among the concerned players. No amount of technology can assist in uplifting performance unless there is meeting of minds with transparency, risk sharing, rewards sharing, information sharing and the establishment of long- term measurable targets as common objectives. While the investment in trust is a definite need, the big question is how much to invest in trust?
The allocation of precious resources, including consultants, has to be with firms and projects that provide substantial value. Under investment can have a negative impact and losing out on opportunities on cost savings or competitive advantage. There is no single secret formula to identify and develop trust; but, adapting to the 4 aforementioned dimensions to achieve success will definitely lead the firm towards a trusted borderless supply network ecosystem purpose built for the future.

Selva Rajah is the head of Supply Chain CoE APAC for Tata Consultancy Services

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