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Supply Chain Is The New Electricity – You Cannot Run Business Without It

Recently I did a small but quite interesting thought experiment with one of my sons.

We were discussing the invention of electricity and he asked me: “Dad, what would happen if there was no electricity?”

Since I actually had such an experience, I recounted to him my life in a remote village in Himalayas when my mother had taken a one-year assignment to teach economics to children in a school nearby.

I told my son that there was no internet, no computers, no telephones, no television, no radio and no light bulbs. Even more so, there was no electricity in that village at all. As a result, the whole village would get up at sunrise, go through their daily routines and were go to bed just after the sunset. People used kerosene lamps to light up for an hour or so after dark and only in case of necessity.

My son is only 8 years old, and grew up in Australia. Hence, obviously enough he found this life almost completely incomprehensible.

On my part, this conversation inspired me to think about life without supply chain management.

I have been lucky enough to have the opportunity of working closely with Dr. Wolfgang Partsch –  who is one of the co-inventors of supply chain management (SCM) in the early 80s. I have had a number of discussions with him about how the business life has changed compared to the life before SCM was invented.

No doubt, the division of labour was one of the biggest and most popular concepts which came out of the industrial revolution. The principle is that every job is divided into its constituent parts to the lowest possible level, so that each person can specialise in what he does best, this would increase the productivity of the overall system immensely. By the late 70s, the division of labour had totally taken over the business as well as governmental work.

Unfortunately, bureaucratic complications combined with the division of labour had created a world in which every department within any company was running as a small fiefdom.

Imagine that a purchasing clerk would issue a purchase order. Then he would let his boss know that he has issued the purchase order as per the boss’s instruction. Then his boss will countersign the purchase order and would inform his boss that such and such item has been purchased, who would then inform his boss, who would most likely be the head of purchasing.

The department head of purchasing would inform the head of manufacturing, who would inform his subordinate, assistant head of manufacturing, who would inform his subordinate, the factory manager, who would inform the manufacturing planner that the purchasing order had been issued.

There were 6 to 8 different links in this communication chain running from the purchasing clerk to the manufacturing planner or production planner. Each message would go up the chain in a department, right up to the department head, and then across to another department head who would filter the message down all the way to a person who would act on it. In such a world with these eight or more different links in the chain, the time difference by itself was enough for the message to lose its effectiveness.

Combine that timing issue with the possibility of a message getting garbled in a long chain of communication, due to the differences of intentions and possibility of misinterpretations of messages, suddenly you realize what a nightmare it would cause.

Not only that, the departmental heads were almost always the biggest bottlenecks in such a communication scheme where nothing would go up, down or sideways without a departmental head’s approval. Obviously, their capacity to process information was only limited by how much time they had.

Problems of the organization without supply chain management

Now before you think of this as a ludicrous, and imaginary situation – let me add that I encountered exactly this situation in an Island airlines where I had the opportunity to participate in a business transformation exercise a few years ago.

Many other organisations I have had the opportunity to serve exhibit at least some symptoms of the same malaise.

So, what would be the typical complications you could encounter if there was no SCM?

You would notice that some easy five-minute jobs could quite possibly take days to accomplish, for a simple reason of the lengthy communication chain required to get the cooperation. You would also see a lot of confusion, because of the possibility of the message getting misrepresented. You would see some coordination, but not a lot of it because of the nature and length of the communication chain.

You would see a lot of bureaucratic nonsense with people hoarding information and only giving it to their bosses or their subordinates in a very selective manner. In many cases, this information hoarding would be pointless and even harmful. The rationale behind the behaviour might simply be a cultural norm or an expectation in such a hierarchical organization.

You would also see too much command and control in this type of organization, for the simple reason that when everything has to pass through a departmental head, he becomes an ultimate arbiter of what information filters through and what does not.

You would also see that the departmental head would have to make all the decisions. Even the smallest scheduling decisions, or planning decisions, or execution decisions, which could have easily be made by people several layers lower than him/her, would need to be made by the departmental heads themselves, again for the same reasons.

You would also see such systems as very rigid with no adaptive capabilities to changing needs of the market place. If you notice any of these symptoms within your company, then there is bound to be a problem with how the supply chain functions in your company.

No matter whether you have somebody with a title of supply chain director or vice-president, your company does not act as an organization with an effective supply chain which cuts across the departmental silos.

As this is a very important subject, in another article I will talk about how supply chain helps to alleviate the silos mentality and integrate departments to act as one company.

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Over the past 19 years, Vivek Sood (Mr. Supply Chain) has been privileged to work alongside the CEOs & executives who care about their businesses as much as he does about delivering exceptional results in business transformations for them. Combining operational experience with over 400 strategic projects covering more than 85 countries taught him a lot - a legacy he continues to share. Want to know more?- go to viveksood.com to read the story about when he had to fight the pirates.

  • Nevaeh says:

    Yes, Mr. Sood Supply chain management played a critical role in the electric power industrial chain optimization. The purpose of this paper was to review a sample of the literatures relating to supply chain management and its possible applications in electricity power system, especially in the context of climate change. The study compared the difference between electric power supply chain management and traditional supply chain management. Furthermore, some possible research topics are addressed. The aim of this paper was to promote the application of supply chain management in the China electricity sector optimizations and brought a change in the related government policy options.

  • Kendyl says:

    For businesses looking to implement green decisions throughout their supply chain careful selection of networks, routes and suppliers will be crucial.

    Given that the first electric train launched in 1879, electric vehicles aren’t exactly new in the locomotive industry. But according to the European Commission about 20% of Europe’s rail traffic is still hauled by diesel trains so there’s still work to be done.

  • Kimber45 says:

    Hey Mr. Sood this what i want you to know what my company performes look over here:
    Our extensive global supply chain infrastructure is primed for challenges ranging from ‘parts in one hour’ to supporting multi-million pound, multi-year engineering projects sourcing materials and parts.

    All this variety means that joining us here will open up a fascinating and endlessly varied world of logistics and possibilities.

    Our typical roles include:

    Supply Chain Analyst
    Procurement Manager
    Buyer

  • Payten Ultraholic says:

    One of the most significant paradigm shifts of modern business management is that individual
    businesses no longer compete as solely autonomous entities, but rather as supply chains . The
    definition of SCM which was developed and used by the GSCF (Global Supply Chain Forum) is as
    follows:
    “Supply Chain Management is the integration of key business processes from end user through
    original suppliers that provides products, services, and information that add value for customers and other
    stakeholders”.
    The broader understanding of the SCM concept is illustrated in Figure 1, which depicts a simplified
    supply chain network structure. Here SCM includes three elements: the business processes, the
    management components and the structure of the chain.

  • Jaden Trenkyards says:

    The research fields of Electric Power SCM and traditional SCM, there are some differences between their focuses. For example, tradition SCM concerns
    the good flow throughout the logistics network in the physical distribution. As a special good; variable
    cost of power transportation is relatively low and real-time balancing of power supply and demand in the
    grid dispatching is more important. There are also some other differences. Overall, according to the
    existing literature, electricity pricing, power plant location and risk management are hot topics. Dynamic
    pricing refers to any electricity tariff that recognizes the inherent uncertainty in supply costs. Electric
    loads follow patterns that vary over the day and the season. The daily variation is generally low (off-peak)
    demand overnight, a rise in demand in the morning to a shoulder period through the day, a high-demand
    period in the late afternoon and early evening (exacerbated by air conditioning on hot days), and a return
    to a lower, shoulder demand in the evening.

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