The Precursors of Supply Chain Capabilities and their Effects on Supply Chain Performance

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Nowadays business environment is fraught with uncertainty. Without clear insight into imminent economic, political, and security developments, many businesses fear how their supply chains will fare in the face of global disruptions and market changes.

These concerns are warranted. Maintaining strong customer relationships and effectively cutting costs must be priorities at a time when consumer is spending and confidence is down. In recent decades, some companies have tried to simplify their command over their supply chains by outsourcing key business processes such as manufacturing and distribution. However, while reducing the asset base under management reduces costs, outsourcing adds business and communication complexity and risk due to the multiple entities involved. And this complexity is only increasing. Outsourced manufacturing and distribution, vendor-managed inventory, and continuous replenishment all increase a company’s dependence on business partners.

Supply chains today comprise multiple tiers, many suppliers, varied transportation modes, and numerous outsourcing partners—leaving many businesses with a set of mounting barriers. Nevertheless, customers still expect end-to-end visibility and seamless execution. Given the increasing complexity and current political and economic climate, companies are faced with a number of potential risks and must be prepared.

Nowadays information flows and material flows are not sequential, linear chains. They represent complex networks with multiple paths and entities. Different business processes, information systems, metrics, and cultures among the different partners increase the difficulty of timely executions and on-time deliveries throughout the chain. Unfortunately, these patchwork supply chains leave companies unable to easily manage changes in their flow of materials, react to exceptions, or respond to changing market conditions, subsequently driving supply chain costs and customer dissatisfaction. Many organizations have spent a lot of time, money, and energy to improve planning and forecasting systems in an effort to avoid business problems such as stock-outs, excess inventories, or late deliveries. These efforts to reduce the inherent risk of volatile supply chains have had mixed success and medium ROI—and have often proven expensive.

Still, buying conduct can be very volatile, especially in economic and political times of uncertainty. Achieving the perfect plan is impossible, and therefore supply chain planning tools have not been able to achieve the results they promised. In the technology sector, market leaders like Cisco and Intel were writing off millions of dollars in inventory when the market demand dropped. Even the most successful companies are not immune to unpredictable market changes. To make things worse, efforts to get a better handle on planning have been less effective than desired because there has been little business-process and systems integration between parties or systems—inside and outside of the organization.

While some of the inherent risks in supply chains have been reduced, there are still quite a few remaining. Exceptions in the supply chain are costly, yet they occur daily in almost every organization. For example, a late shipment may result in a stock-out, a lost order will hurt customer-service levels, and a customs delay will most often result in either an expedited shipment, buffer inventory, or a dissatisfied customer. Reacting too slowly to exceptions or crises can lead to excess escalation, expediting costs, and dissatisfied customers. Being prepared to deal with these unplanned events will differentiate a business from its competitors. The present work discusses the supply chain capabilities and stresses that the control over the supply chain capabilities and its effect on the supply chain performance will raise the sales.

Besides, an adaptive supply chain network is an interconnected value chain that allows a company to respond quickly to changes in order to solve problems before they affect the company’s business or its customers.

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