Part 2 in the “Murmuration and Digital Supply Chain Collaboration” series
As we discussed in part one of our murmuration blog series, flocks of starlings have the incredible capability to communicate new information to thousands of other starlings quickly and react in an extremely agile manner when the entire ecosystem is in danger of disruption, such as by predator attacks.
How do these ecosystems become so agile, how do they communicate so quickly, and more importantly, how do they achieve competitive advantage with their dynamic supply chain? Back in the 1930s, leading scientists suggested that birds must have psychic powers to operate together in a flock. Fortunately, modern science is starting to find some better answers.
Starlings seem to balance their effort in a way that they communicate with only seven neighbors while maintaining the ability to move with the flock quickly and without crashing into the other 10,000 birds.
Pioneering computer scientist Craig Reynolds in 1987 found out that there’s no central control or required orchestration, rather communication hinges on a single starling acting based on three simple rules:
- Separation: Avoid crowding your neighbors
- Alignment: Steer toward the average heading of your neighbors
- Cohesion: Steer toward the average position of your neighbors
Figure: By communicating with seven neighbors, after eight times, millions of starlings receive a message
How can we translate these two concepts into supply chain strategies?
Who are your seven neighbors? This can balance the collaboration effort between the number of (A) material managers, (B) suppliers, and (C) the intensity and quality of the collaboration.
I often see companies constraining themselves upfront by focusing on the suppliers that cover 80% of their spend, even if this doesn’t achieve value. The organization tends to either ignore the other suppliers or offer demand data without understanding what the supplier will do with the information. How a supplier acts and reacts both tactically and strategically to this information can help drive efficiency across the network.
Instead, you might want to start thinking about removing constraints first; meaning you reach out to (1) all your suppliers and ask them for (2) all the information you need to optimize internal processes and how often and how (technically) they can deliver it. Then, have them ask you in return (3) what they need from you to become better and (4) what is the most efficient way for them to consume the information. Then try (5) to automate as much as possible and only then (6) constrain the process with the number of people you have in place. Also, don’t forget about the effort you create for your trading partner and to which extent you can help reduce it.
How could we translate the starlings’ three simple rules for the supply chain?
Depending on the industry, smart simplifications already exist:
- Leveraging scheduling agreements is an example of simplifying a very complex process, if you think about how much information is shared in a single document in a structured way.
- Supplier-managed-inventory is a simplification from a manufacturer’s perspective. The same holds true for other lean concepts such as Kanban.
But let’s not forget that these processes require a certain degree of readiness by the trading partners.
Other possible simplifications are:
- Focus on suppliers that are most critical to your customers. You may find, for example, that 10% of your suppliers can drive 25% of your working capital reduction value proposition. Establishing a quick win can help encourage other suppliers to follow.
- Share your unconstrained demand with your suppliers and ask them to respond instead of managing a confusing number of constraints at the same time.
And don’t forget about the necessary prerequisites to simplify processes:
- Get into a mode of early involvement by your trading partners. For example, before having a supplier adjust their production plans based on your needs, align your component forecast with what the supplier forecasts as your demand.
- Reduce the noise in your network while keeping a certain process flexibility by embedding supplier collaboration into a rule framework with defined thresholds. Examples of this strategy include:
- Confirm orders within x days
- Don’t ship more than ordered without asking
- Have your Certificate of Analysis approved by the customer prior to shipment
- (Re-)define your processes before simplifying technology; otherwise, you might automate unnecessary process steps.
- Going forward, AI technology will certainly help automatically uncover and apply possible simplifications.
More is necessary to act as a flock, which we will continue to explore. Meanwhile, the key takeaways are how you can be a leader and enable your supply network to act as a flock, resulting in an agile business with reduced costs, improved service levels, and other key performance indicators of a very healthy business.
Learn more about network-centric collaboration in IDC’s new Industry Brief “Achieving Competitive Advantage with Trading Partner Collaboration in a Global, Dynamic Supply Chain,” and watch for part 3 of our series on murmuration and the supply chain.
Read the entire “Murmuration and Digital Supply Chain Collaboration” series.