From Supply Chains to Supply Networks

In conversation recently, we stumbled upon a useful (albeit ‘obvious in hindsight’) fact.  Supply chains are a construct, and a construct of customers in most cases.

Perhaps they are a legacy of the thinking contained in vertically integrated corporations of old – or maybe they are valuable because they make certain participants feel empowered.  Whatever their genesis, they are no longer useful frameworks within which a company should form its thinking.

There have been, and will continue to be, a procession of supply chain vendors providing products and services which will seek to implement traceability mechanisms.  We would observe that often the first market will be the major supermarkets: “because they have complex supply chains”.

And in some cases, these traceability mechanisms will show early success.  But they almost always avoid the real complexity, because solutions driven from a single actor are destined to fail unless that company is a vertically integrated organisation.

What do we mean by this? Consider the traditional model of vertical integration: a company owns a iron ore mine (it takes 75% of production), a coal mine (it takes 75% of production), a limestone quarry (it takes 75% of production), a kiln(it sells 100% of the product), and the logistics in between.  It’s a steel company – it has full control over its practices.

Now consider a UK supermarket: it has a haulage company that works for it (it represents 75% of that haulier’s revenue); the haulier collects tomatoes from a major grower in Suffolk (that grower only grows tomatoes, and it generates 75% of its revenue from the one supermarket).  Here we have three legal entities – but the revenues generated from the supermarket mean that both grower and haulier are dependent on it for their livelihoods.  They are both arguably extensions of the supermarket, and vertically integrated into it.  In fact, with some gentle cajoling the supermarket can decided what the grower and haulier do in their businesses – such is the balance of power.

So far, so obvious.  But also, such a minority representation of how the world really works.

Vertical integration is rare because, in the majority of cases, it makes no sense.  Specialisation makes sense – be it in mining, logistics, smelting, or retailing.

The reality is: most organisations might *have* supply chains, but they *exist* in supply networks.  Supply networks have multiple agents, and the best practitioners will ultimately beat the competition.  ‘Supply chain thinking’ does not enable the supermarket to tell Unilever the price of Marmite, or – and I know its not life threatening – a supermarket to row against global increases in the price of wheat.

Saffron Traceability is expunging the language of supply chains from its vernacular – we think networks, because the world does networks. Distributed ledgers enable multi actor networks, not crown-and-fief environments.  To be successful one needs to learn – and framing learning in the real context is critical to learning fast.