Supply chain foundation: Building the elusive control tower

The COVID supply chain crisis acted like a stress test, revealing many structural problems in supply chains. Executives learned that they had less visibility, less real-time information, and less resilience in their supply chains than they had thought. AlixPartners Disruption Index found that today eight out of ten say they need to diversify their supply base; similar numbers say they need to invest in AI solutions to combat supply chain disruptions, and three in five worry that supply chain disruption will put them so far behind their competition that they can’t catch up.

A big insight from the crisis: Supply chains need control towers—the capability to track components, work-in-progress, and finished goods in detail and in real-time, to spot problems fast so they can be fixed fast, and to monitor costs and payments along with physical goods. The design of a control tower will vary according to the configuration of a company’s supply chain, but a conceptual view of a multi-national product flow is shown below (figure 1). Complex trade flows can contain multiple distribution nodes serviced by a variety of logistics partners and modes, which can make it extremely challenging to deliver seamless execution. Companies that were able to react in real-time to disruptive events through a supply chain control tower fared much better than those with less sophisticated visibility tools.

With the worst of the crisis (mostly) behind us, companies are reviewing the control tower concept and finding that real-time visibility and execution management is not just for troubled times, but for everyday business as well. Now companies have the chance to transform hastily assembled control towers into powerful, digitally driven capabilities. A control tower can help supply chains work better in normal times—and it can create an early warning system for the next disruption. Highly sophisticated digital tools can bring forward insights faster, creating transformational opportunities. These digital supply chains can deliver real-time data, using robotic process automation (RPA), artificial intelligence (AI), internet of things (IoT), and other leading-edge digital solutions.

But they can also waste money. Control towers—and the supply chains they oversee—need to be built on the principle of “practical digital,” to ensure that the technology is aimed at the right business questions and is producing insights companies can act on. That means their operating model needs to consider more than the tools. Companies need to have the right people because even the best digital capabilities cannot have conversations with important customers when problems arise. They need the right processes, including a process to override automated functions to manage exceptions with purpose. They need appropriate fiduciary controls (inventory, billing, invoicing, receivables, cash application, etc.). And, because digital is only as good as its data, companies need data governance capabilities and accurate customer mapping.

To make control towers work, organizations must teach themselves to think differently and potentially evolve how critical decisions are made across their businesses, which adds an element of governance to the process. Looking at how a supply chain responds to disruption is a useful illustration of why “practical digital” deployed with a comprehensive operating model is so critical.

Control tower use case: Give me options! (When “No” will not suffice…)

Despite the best intentions and risk management planning, the pandemic forced many companies to refuse orders from important and strategic customers. In normal times, a backorder is followed with estimates of product availability along with viable product substitutions. However, the broad category-wide shortages of 2020-2021 made these estimates inaccurate, and often there simply were not any short-term viable alternatives to offer.

Unfortunately, that did not make telling your most important customers “NO” any more acceptable. Complicating matters, many contingency plans address discrete one-time crisis situations and do not provide options that deal with a prolonged pandemic and its broad supply chain impact.

In response, cross-functional teams were formed and charged with working through complex supply situations to mitigate difficult priorities on a real-time basis. In a sense, these teams were asked to create a supply chain control tower under a fast-track, and at times ad-hoc, mandate. For many companies, this was another illustration of the need for a coordinated operating model built upon people, process, and digital technology.

People capability: In a crisis, decision-making is often escalated and centralized. (Think of the “Situation Room” in a national security context.) Those protocols need to be reexamined; the long-term operating model for a control tower is likely to need more flexibility and more empowerment so that decisions can be made at the appropriate level of the organization, and, of course, the ability to escalate problems and decisions where necessary.

Process capability: How easily did your organization fast-track the development of alternative supply chain processes? Can your product and supplier qualification processes evolve quickly enough to take advantage of new options? Or will the option disappear before your organization can act? Are you comfortable with the risk that a fast track might entail (product quality, credit, customer acceptance)? The stakes can be high: slow or risk-averse players may be pushed to the back of the line by faster competitors. But those with the means to make large commitments may do so with imperfect information and may find themselves stuck with unwanted consequences.

Digital technology: Does this quote sound familiar? “I’m not sure this data is 100% correct… Does this report include yesterday’s production?... Until we have correct information, we need to postpone this decision…” Sentiments like these reflect a lack of confidence in the information that is presented by the digital solution. Often the problem is not the tools, but the data they’re given to work with and its relevance to the business problem to be solved. Do you have accurate customer mapping into segment priorities for allocation? Are segment definitions in line with how your organization wants to prioritize resources? Decision support tools must be fast, up to date, trusted, and relevant to be a viable component of a control tower operating model.

Build your control tower on a comprehensive operating model

A control tower can transform supply change management, creating a digital supply chain that is faster, cheaper, and more resilient than the old one. To do that, the control tower needs to be built in accordance with a complete operating model for the new digital supply chain. This model must include people, process, and digital technology. The digital technology portion of the model may be the easiest one to implement (If sound data governance structures are in place). The people and process elements will be the key differentiators of a solution that creates lasting value.

About the authors:
Steven DeVoe is a director at AlixPartners, with expertise in strategy, supply chain, and operations. He can be reached at [email protected]. Marc Iampieri is a partner and managing director of AlixPartners, having spent much of his career focused on improving the supply chain performance of manufacturing and distribution intensive companies. He can be reached at [email protected]. Erik Mattson is a director at AlixPartners and has held a number of roles in the supply chain, including positions in procurement and operations for a Fortune 50 company. He can be reached at [email protected].

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