The Myth of Supply Chain and Manufacturing Operations Alignment

A continuing effect of the pandemic is the robust momentum and new energy behind enterprise digitization, Industrie 4.0 and smart manufacturing initiatives.

Seventy-six percent of the respondents in a 2020 Gartner smart manufacturing survey anticipate that their organizations will increase their investments in technology to support smart manufacturing over the next two years. At the same time, 2021’s expanding economic activity and surges in demand across industries bring new challenges and constraints. Organizations are increasingly pressured to explore and implement new concepts and practices to cope with the eroding workforce and erratic availability of raw materials.

Our globally recognized definition of the supply chain process is plan, source, make, deliver, regardless of industry, geography, product or service. Supply chain management connects customers to products and suppliers to manufacturers. Supply chain professionals understand the importance of plan, source, make, deliver to effective commerce. Supply chain control towers promise visibility and better decision making across the value chain. Yet without the actuals from factories it’s hard to run the business unless you’re comfortable with assumptions. Let’s look at the reality of the “make” function and its position within the global supply chain.

Strategy Alignment

In the past few years, Gartner has performed research surveys on the business value of manufacturing execution systems (MES) (most recently in 2018) and smart manufacturing strategy and implementation trends (most recently in 2020). The initial MES surveys on manufacturing strategy and supply chain alignment were encouraging, where supply chain collaboration was ranked at or near the top in a list of important IT Trends by respondents at companies that have an MES system. Also, 75% of surveyed professionals reported some level of involvement between the supply chain organization and MES strategy, with 31% stating that manufacturing is integrated as part of a full supply chain end-to-end strategy. The expectation set is that this alignment and involvement would produce full adoption of end-to-end supply chain strategies across manufacturers (Figure 1). What could stand in the way?

Organizational Alignment

Admittedly, there is no “one size fits all.” In some cases, the supply chain value proposition may favor logistics, or manufacturing capabilities may be sufficient and may play a lesser role. However, there is a difference between strategy and alignment, and in some cases the results show that strategy does not necessarily lead to alignment. There is often an organizational and cultural gap between supply chain and manufacturing operations that has existed for decades and has shown to be stubbornly difficult to overcome. One indicator of this organizational gap may be found in some of the findings from our recent smart manufacturing strategy and implementation trends survey. While we in supply chain believe in the mantra of plan, source, make, deliver, the data from our 439 manufacturing respondents to the survey tells a different story. Only 21% of supply chain professionals noted that their manufacturing organization report to the supply chain organization. The majority report to the chief operating officer.

The COO and CSCO work to achieve the same high-level corporate goals, but their strategy and focus will differ. COO focus is on cost and efficiency (local optimization of manufacturing operations, improvements in KPIs such as yield, overall equipment effectiveness (OEE), energy management, quality management). This internal focus is aimed at specific improvements in how the “make” function is run.

On the CSCO side, there has been a pandemic-driven shift in emphasis between investments in resilience and agility, and being cost-efficient. The challenge for CSCOs and their organizations is to find new trade-offs between cost, speed and service in a changing landscape where uncertainty and higher customer expectations go hand in hand. The need is to optimize supply chains to deliver the desired customer experience efficiently, while leaving room to maneuver around uncertainty and disruptions.

End-to-end supply chain strategy becomes a more difficult task when the alignment between plan, source, make and deliver requires alignment at the CxO level. Bottom line, in the majority of manufacturing companies, an end-to-end supply chain strategy is easier to define than it is to implement.

Technology Alignment

Technology vendors follow the Willie Sutton Rule (they go where the money is). Technology solutions for manufacturing operations have focused on the needs of the manufacturing plant as driven by the COO. The top reasons for investing in MES have always included improving quality, reducing cycle time and increasing yield at or near the top of the list. As MES has morphed into Manufacturing Operations Management (MOM), the added functionality (detailed scheduling, dispatching, warehouse management) are often targeted versions of their supply chain counterparts optimized for tasks within the four walls of the plant. These systems actually make alignment with the rest of supply chain more difficult. Manufacturers continue to expand the volumes of data that they collect using both traditional operations technology and newer Industrial Internet of Things capabilities to continually improve energy management, asset performance, quality and visibility. Meanwhile, on the supply chain visibility side, control tower applications extract the bare minimum information from manufacturing, typically just order status and raw material consumption.

What to do …

While it’s fun to admire the problem, the answer follows the problem definition. Align your end-to-end supply chain strategy to include manufacturing operations, align your organization to achieve your end-to-end supply chain strategy, and make technology choices that will support your strategy and organization. Or, as stated in “4 Tactics for CSCOs to Shift Manufacturing From a Cost of Doing Business to a Competitive Weapon”:

• Reshape the team that makes the final manufacturing strategy decisions by including a wider set of stakeholders across supply chain and other business functions.
• Achieve the next level of performance for the customer by synchronizing smart factory’s role as part of an agile supply system and avoid the peril of isolated production capabilities.
• Develop a digital strategy for manufacturing operations built on contextualized data and agile IT systems.
• Reinvest in and modernize the production system by expanding upon current lean and continuous improvement foundations with new digital capabilities and talent.

Rick Franzosa
Senior Director Analyst
Gartner Supply Chain
Rick.Franzosa@gartner.com