External supply chain alignment is still many years away, says MIT study

Jan. 3, 2005
“There seems to be a consensus that different organizations will gel together to form virtual organizations that will ramp up or down to meet demand as needed”

“There seems to be a consensus that different organizations will gel together to form virtual organizations that will ramp up or down to meet demand as needed,” says Mahender Singh, a researcher at MIT’s Center for Transportation & Logistics (CTL). In this scenario customers take total control over the creation and delivery of services, and there is a “presumed environment of total trust and commitment from all involved in the creation of such alliances.”

Singh has studied more than 100 relevant works to develop a consensus on the future shape of supply chains, as part of MIT’s Supply Chain 2020 research project. He observes there is “an unspoken assumption” that national boundaries will disappear to make way for unfettered trade, and the emergence of mature economies around the globe will “enable frictionless trade.”

He believes this to be a utopian view, at least up to the year 2020. “It is difficult to imagine a supply chain that will share risks and rewards objectively among its constituents,” Singh says. Companies find it difficult enough to achieve internal alignment, let alone alignment with external trading partners. Friction between the many working parts of a supply chain will continue to inhibit the development of a totally enabled supply chain, Singh maintains.

Also overly optimistic are the predictions of free-flowing, borderless trade. In the current political environment the trend is in the other direction -- to introduce more restrictions on the movement of goods and people to counter the threat of terrorism and instability. Moreover, there is a tendency to form regional alliances as a protective measure against the economic dominance of the U.S., Singh points out. Although he anticipates tremendous advances and more efficient supply chains “the concept of total connectivity will likely be present only in spirit,” he argues.

The rosy predictions also contain contradictions that strike at the heart of how businesses compete and grow today. “Many visions predicted or assumed complete sharing of information or knowledge,” he explains. However, sharing these resources could be problematic given that future competition is expected to rest on information-based strategies.

Another apparent conflict lies in how companies will recover rising plant and equipment costs from products that have shorter lifecycles. The definition of what constitutes an asset will have to change, according to Singh, since investments in human capital will become more important as “knowledge bearing human beings” become more highly prized assets.

Given these shortcomings, is prophesizing a worthwhile activity? Singh believes it is, because future-telling helps companies to prepare for change in a world where it is no longer good enough to simply update or improve past innovations. Further, the future of supply chains is shaped by macro factors such as geopolitical shifts and changing energy costs, and modeling these trends -- even though the models are inaccurate -- at least illuminates possible strategies for coping with what lies ahead.

The key is to avoid point forecasts that are inherently unreliable, and to present the future as a set of multiple likely scenarios instead, Singh advises. Energy company Shell originally developed this approach, called scenario planning. In the words of Arie de Geus, retired planning coordinator for Royal Dutch/Shell: “The ability to learn faster than your competitors may be the only sustainable competitive advantage.”