1. 3D Supply Networks

Remember the days of the pink telephone message slips?  That was back when we had one-on-one communications.  Organizing a conference call was hard to do because the technology was not there to support it.  Today, most of our conversations are not one-on-one; we communicate simultaneously with many people through email, online meetings, and shared documents.  The benefits of many-to-many communication are faster outcomes, access to a wide pool of expertise, and lower costs.

The change from a point-to-point distribution system to a many-to-many supply network has not evolved as quickly as communication.  Distribution started with a 1D model where product shipped from factory to retailer, and later evolved to a 2D model, where product ships from the factory to manufacturers’ mixing center.  This change enabled retailers to buy full truckloads and have shorter lead times.

The result is that most manufacturers have warehouses next to each other in large industrial parks.  Every day, each manufacturer loads up trucks and sends them off to the same retailers as the warehouse next door.  Think of the waste as a truck leaves, with a single layer of canned goods that weighed out the truck, minutes after a cubed-out truck of paper towels leaves from the other side of the industrial park.  A truckload with cans on the bottom and paper towels on the top could have left for half of the cost.  Imagine the benefits if those warehouses functioned as one:  retailers could build a truckload order across all of those products.

The result of the 3D, or many-to-many model, is that trucks are optimally filled due to greater variations in product size and weight.  Service is faster because scale allows products to ship daily to a retailer.  Costs are lower because shared services and fewer, fuller trucks save money.  Road congestion, particularly important in growing urban areas, is reduced.  This is the shared supply network of the future.

Other industries have figured out how to leverage regionally optimized shared facilities.  Airports service multiple airlines.  Passengers fly in on one carrier and sort themselves onto another carrier for their next leg.  When was the last time you booked a flight where you needed to change airports to change planes?  Airlines leverage the benefits of shared infrastructure (security, foodservice, fuel, air traffic control, etc.) to deliver better, faster solutions to their customers.

With stores getting smaller and urban populations growing, the challenge of getting product to the store will drive the evolution to a many-to-many, or 3D, supply network.  Imagine a distribution infrastructure that ships product directly from manufacturers’ inventories to all of the retailers in a shopping center on a single truck.  Product is delivered daily (or more frequently) to grocery stores, mass merchandisers, drug stores, and value stores in close proximity.  This shared distribution network allows manufacturers to quickly send fresh product to the consumer, and lowers the cost of distribution.  It is the Internet for consumer goods.  This is the vision that was developed by The Consumer Goods Forum in their “2016: The Future Supply Chain” study.

According to supply chain guru James Tompkins, “…despite all of our supply chain management efforts, we are still losing ground.” Companies are still investing internally to create walled off, proprietary supply chains.  Yet the returns from these investments can be elusive.¹ Tompkins advocates a supply chain without boundaries, with the goal of satisfying the ultimate  consumer.  Inventory reductions, lead time reductions and lower costs will follow.

PwC’s Global Supply Chain Survey 2013² identified how leaders are moving ahead through customization, investing in next generation capabilities to focus on becoming faster and more efficient.  Within the Retail and Consumer Goods segment, the top five leading practices are ones are enhanced through collaboration.

1. Minimizing Costs (95% of respondents):  Shared distribution optimizes end-to-end supply chain activities and eliminates the duplicate receiving, selecting, and transporting efforts that are prevalent in today’s hand-offs from manufacturer to retailer.
2. Maximum Delivery Performance (90% of respondents):  Collaboration across manufacturers enables scale, allowing retailers to order multiple truckloads per day from one shared facility.  Order-to-delivery cycle times of less than 24 hours and order minimums of pallets or layers help retailers maintain the highest possible on-shelf availability.
3. Maximum Volume Flexibility and Responsiveness (79% of respondents):  The current environment is full of divestitures and acquisitions.  This means that most mixing centers are either too big or too small the day after they are opened.  In a shared distribution environment, the increases and decreases in space needs can be absorbed.  This allows participants room to grow their business without the cost of completely re-inventing their supply chains.
4. Complexity Management (70% of respondents):  The move to omnichannel solutions is increasing an already complex supply chain.  Collaboration provides manufacturers and retailers the scale necessary, through innovation and automation, to streamline processes and reduce complexity.
5. Minimized Risks (60% or respondents):  Supply chain disruptions have an impact on market share.  Most single manufacturer or retailer facilities cannot afford to go to the level of “hardening” that is needed to ensure continuous operations.  Shared facilities can provide back-up generation, duplication in communication infrastructure, etc., enabling them to function while other facilities are shutdown.

So what is keeping companies from evolving to this next level of supply networks?  The benefits are clear and industry changes in people, processes, and technology are aligning to drive change.  Still, collaboration is hard work and requires more than just an agreement.

Defining structure and clarity is the key to collaboration.  Luke Lee, Founder and CEO of UBIMS (Ubiquitous Market Systems, Inc.), describes the four requirements for constructing a 3D supply network model:

1. The rules and standards for transactions must be simplified and transparent
2. Fair (neutral) conditions must permeate the competition
3. The line of responsibility for every participating member must be clear from the start
4. It should be applicable everywhere.³

Tompkins describes the evolution to this level of supply chain integration as synthesis.  It is the pinnacle of supply chain management, where each entity is optimizing their own link to supply chain excellence, and where all parties are working together to optimize the entire chain.  This happens when companies begin to focus on attaining consumer satisfaction rather than customer service, and customer satisfaction becomes the measure of supply chain effectiveness. In order to achieve supply chain integration, partners must find a way to hold each other accountable to the requirements outlined by Lee.  That works best when a neutral, third-party is trusted by all partners to enable compliance to the requirements.  This neutral third-party can facilitate collaboration, leading the way to supply chain excellence. The nine issues that led to the number one trend, 3D Supply Networks, make the case to evolve to a collaborative 3D supply network now.  We anticipate more change in the next five years than in the last fifty years.  Those that prepare for change will build strong, flexible organizations.  Those that hold to 2D supply chains and past practices are likely to fail.  This is a time to work together on the areas that build consumer satisfaction and compete in areas that build brands.  Joining a 3D supply network provides the flexibility and resiliency necessary to adapt to the coming changes.

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