I asked that question to Chad Smith and Carol Ptak in a past podcast and you might be surprised by the answer.
Carol Ptak: It’s not really a flatter supply chain, because when I think of a flatter supply chain, I think about what’s happened in the Lean community, where they believe that the way to get more accuracy in their forecasts and to be responsive is they flatten the bills of materials, which meant that now I go, and I have everything on the same level of the build going into the final end product. Which is OK, and it works really well if you’ve got a company that is very, very reliable, with demand that’s really reliable, that the next one looks like that last one, and that’s all great. And to me, when I think about a flatter supply chain that would work the same way if I had a supply chain that always looked the same way that always demanded the same thing.
But the fact that it’s not flatter, it’s actually more responsive. Because when I think of how most people describe a supply chain, they do describe a supply chain as linear. And in all the years I’ve been out there, I’ve never seen a linear supply chain, where I’ve got a company that has a customer and a suppler and a supplier’s supplier and a customer’s customer, until you finally get to the customer’s customer’s customer and the supplier’s supplier’s supplier. That’s a linear supply chain, and I haven’t ever seen one of those.
To me, supply chains are almost web-like. That’s why we put that graphic on the cover of this book. Somebody said, “Where did you get this graphic from?” And I said, “Well, that’s what’s in my head, is what a supply chain looks like.”
They said, “Ooh, that’s a real scary place.” It’s web like. It’s got nodes. It looks like a fishing net, but in three dimensions, with all these little things going on. I don’t buy from a single supplier. I don’t sell to a single customer.
It’s not about flattening the supply chain as it is being able to think of it like a spider’s web, being able to sense that vibration in the web, so that that spider can get out there and grab its prey and eat. That’s really what a supply chain is all about.
The book and the work that Chad and I have been doing is getting that supply chain to have a higher ability to sense and adapt. I hesitate to use the word “reactive” because I don’t want to be reactive. I want to be able to sense and adapt to what’s going on in the marketplace rather than just reacting to what’s going on, because when I just react, I can make some very poor decisions.
As Chad said, I’m looking at inventory in a whole new light. Inventory is on our balance sheet as an asset. Why it hasn’t been looked at before, saying, “Hey, that asset should yield a certain return on that investment.” It needs to be now, because we’re all being crunched for this investment that’s tied up in those dollars of inventory. So it’s how, in that position of the supply chain, I can sense and adapt to the market so that my inventory investment’s giving me my best return.
Related Podcast and Transcription: Discussion on Orlicky’s Material Requirements Planning
About Chad Smith and Carol Ptak: Carol and Chad are the co-authors of the new fully revised and updated edition of the landmark work on material requirements planning (MRP), Orlicky’s Material Requirements Planning, Third Edition.
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