The supply chain solutions and supporting technology that should have been there to correct the damage to the United States’ manufacturing base that occurred over the past 20 years have greatly let society down. Instead, real capability in that sector has gone backward.

Software vendors marketed applications that resulted in islands of proprietary data. At the same time, an army of functional “experts” championed isolated systems and strategies that ended up enhancing China’s ability to dominate global manufacturing at the expense of U.S. business.

The COVID-19 pandemic gave rise to media and industry pundits who claimed that the solution lay in improved supply chain resilience through the amassing of extra inventory, capacity and infrastructure, coupled with a reshoring of production that might lead to multiple contractor manufacturers making the same item in different parts of the world.

Those of us in the trenches of supply chain management know that the real answer lies in the first principle of balancing lead time of supply with that of demand. We can’t just address the lead time required to make-to-stock in China. The U.S. and other western democracies must focus on rapid, build-to-order manufacturing, with production synchronized across companies. Western free markets aren’t Soviet-planned economies — or like that of China, where the Communist Party is bent on pushing all manufacturing into a planned, state-controlled model.

Today’s enterprise resource planning (ERP) and advanced planning and scheduling (APS) applications are part of the problem, not the solution. Note that the percentage of working capital (inventory) to sales ratios (inventory turns/days of inventory per year) has gone up in almost all major industries. For example, the medical device sector grew from 110 to 163 days of inventory between 2004 and 2020 — a 53% increase. During the same period, automotive parts inventories increased by 32%, and semiconductors by 7%. Clearly, the application of expensive APS and ERP software has not improved end-to-end supply chains.  On the contrary, supply chain applications over the last 20 years have significantly damaged business results, despite grandiose claims of “value add.”

We believe that the Chinese Communist Party has used this lack of quantitative clarity to convince American C-level executives that long manufacturing lead times out of China result in lower costs and are in the best interest for U.S. shareholders. The massive out-of-stocks caused by COVID-19 revealed the truth. We learned that we can’t expect individual corporations to compete with a nation state that uses government subsidies to manipulate and even destroy western companies and entire industries.

These mistakes could have been avoided if corporate America had access to a simple-to-use sales and operations planning (S&OP) tool for acquiring forward visibility. That would have equipped operational leaders with the ability to illustrate actual cost, and design demand and supply lead times accordingly.

Think about how mechanical engineers use a finite element analysis simulation to design an automobile or airplane, allowing them to make necessary adjustments while skipping the cost and delays of physical prototyping.  This capability is completely absent in supply chain, despite many software vendors peddling their applications as enabling “supply chain design.”  Businesses need a simple forward S&OP visibility tool to correlate the lead time of demand with that of supply, simulating operational flows in a way that allows them to estimate income state and balance sheet results, while responding to changing market conditions. This capability does not exist in 99.9% of companies —and no big supply chain tech vendor offers or even understands this need. Instead, they sell simple network optimization tools that do not actually model the ecosystem and network.

What Went Wrong

Following is a partial list of misdirected goals, technologies and marketing efforts of the past 20 years.

Dysfunction caused by Western-world generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) accrual accounting.  As businesses grow out of a cash-based accounting system, GAAP accrual accounting becomes required by banks and Wall Street. Unfortunately, many companies become subject to massive manipulation of the historical timing of revenues and expenses.    Great companies, on the other hand, do their GAAP accounting but don’t actually run their business operations from it. Rather, they install cost accounting with a forward-looking S&OP model. As a result, they’re able to align manufacturing with order lead times. 

False ERP claims. There was a period in the 2000’s where the big ERP companies literally said that if your entire supply chain ran their “XYZ brand” of ERP, your problems would be solved. Many of the biggest firms took the bait — and ended up going backwards.

Demonizing of spreadsheets. A parallel network of spreadsheets, e-mail, whiteboards and phone calls synchronizes nearly all external partners, including contract manufacturers, co-packers and strategic suppliers. When you outsource production, you lose the right to tell the producer how to produce. It becomes a negotiation instead of a command. Spreadsheets and e-mail are the best tools for managing this process — yet big supply chain technology providers have ignored this need.

Big supply chain tech’s “hammer looking for a nail” (centralized computing) mindset. Supply chains need massive investment in software for integrating dissimilar systems and data. They represent the most heterogeneous use of technology and process at multiple times and places. Yet there’s been little progress since 2000 in achieving cross-enterprise integration to synchronize plans, schedules and inventory levels, both at rest and in transit.

“Experts” in functional logistics and technology failing to provide true supply chain solutions. All they’ve done is lengthen lead times, without any attempt to balance demand and supply.

How to Fix It

What to do about all this? Here are some suggestions for fixing the problem, and getting supply chains back on track through the acquisition of collaborative forward visibility.

Call initiatives “supply chain” projects only when they’re impacting the real synchronization of lead times for demand and supply. Measure results in the form of return on assets and investment, inventory turns, working capital efficiency, on-time orders and product catalog breadth. Go ahead and install a warehouse or freight-management system, but don’t label it a “supply chain” effort.

Make sure that supply chain technologies have extensive data-sharing and replicating capabilities. Countless software vendors claim that every node in a heterogenous supply chain network must run or use their applications. This is an absurd statement. Every company needs an on-demand pipeline to ecosystem data. There must be a way to access and synchronize this data with minimal delay, not rely on weeks-old information to make forward visibility decisions.

Deploy technology that complements the existing system. A Manhattan Project-style effort needs to be undertaken in the IT industry to synchronize dissimilar systems using collaborative and asynchronous data and secure private networked systems, to offset over-reliance on walled-off clouds of synchronous applications. 

Focus on workflow, process and people — not AI — for now. When you get data in sync, artificial intelligence will work well. Most of the time, however, people can use simple available-to-promise logic to make better and faster decisions. AI can provide a breakthrough when basic production data is synchronized, at which point it can suggest improvements to the manufacturing model. But until ecosystem data is in sync, AI is mostly a distraction.

Adopt an operating model that aligns demand and supply lead times for strategic advantage. We call this forward visibility. In essence, companies must shift their game from accounting checkers to three-dimensional chess — all tied to an understanding of the true value-add to be derived from manufacturing strategy. That might mean reshoring, coordinating with friendly partners, postponing assembly of components according to actual orders, and countless other permutations. And it means never again abdicating key decisions to a state-controlled government.

Through the application of S&OP-based forward visibility, we can finally anticipate and respond to the customer’s needs. We can understand, control, monitor and proactively adapt supply and demand lead times. And we can counter predatory actions against the free-market economy. The supply chain industry must step up and refocus on real value — not isolated functions of technology.

Jon Kirkegaard is chief executive officer and founder of DCRA Inc.