Do a Google search on the term “supply chain convergence” and you will get 16 million hits. Supply chain convergence is a term Gartner first coined in 2008 to highlight the challenges companies were having with synchronizing and orchestrating end-to-end supply chain processes that span functional domains. A decade later, the concept is finally resonating with customers who continue to struggle with choreographing end-to-end processes.
Supply chain convergence is where barriers are broken down and business processes span, synchronize and optimize across traditional functional domains. Convergence recognizes the growing need for supply chain organizations to do a better job of orchestrating and synchronizing processes, sub-processes and activities across functional domains (e.g., customer service, warehousing, transportation and manufacturing).
Mistakenly, most outsiders think convergence is a technology-only strategy and that if supply chain software vendors could just better “integrate” their applications this would solve everyone’s problems. Nothing could be further from the truth. From the get-go, Gartner’s delineation of “convergence” was first and foremost about the end-to-end supply chain processes and what steps companies should take to orchestrate these better across departmental silos.
With or without technology, the challenges are the same. There are conflicting goals, metrics and incentives between functional organizations. Processes are designed to be functionally specific and not end-to-end (e.g., complete order to cash). Decisions are typically designed to vertically/functionally optimize, not horizontally optimize across the extended supply chain. Without question, technology plays a part once companies understand, redesign and deliver holistic end-to-end processes, but it is not the central tenet of convergence.
Gartner conducts an annual Supply Chain Technology User Wants and Needs study, with the most recent data from the first quarter of 2018. The survey explores the role technology plays in supply chain, how supply chain organizations leverage technology for competitive advantage and their changing views on how best to exploit technology in their supply chain (SC) organizations.
In one question respondents were asked what they saw as the most notable barriers to achieving their supply chain objectives. Figure 1 highlights that respondents identified lack of cross-functional collaboration, lack of visibility across the supply chain and difficulty synchronizing end-to-end processes as three of their top barriers to success. These remain vexing challenges for supply chain organizations and will keep many from meeting their performance expectations. For example, to quote one customer, “collaboration starts at home,” and “if they can’t collaborate between functional groups within their own company, how can they hope to do so with their trading partners?”
In the digital world, the next opportunities for business improvement will require organizations to coordinate and synchronize end-to-end processes like selling, buying or making. This will require supply chain management (SCM) capabilities to “converge” across or between traditional SC functional silos. Many SC organizations try to use their SCM application portfolio approaches to achieve functionally-specific process improvements, typically targeting and removing things like excess inventory or poor productivity. However, most SC organizations struggle to horizontally orchestrate let alone optimize processes that span functional groups.
Leading-edge SC organizations are finally beginning to break down functional and application boundaries to drive greater levels of maturity and value. This concept has been looming for years, but companies are just now realizing the urgency. There are new business pressures like digital business and expanding supply chain networks. Products and processes are increasingly complex, supply chains are becoming more distributed and outsourcing is pervasive. Unquestionably, alignment is crucial to survive, let alone thrive.
Supply chain maturity and supply chain convergence attainment are closely aligned, but they are not synonymous. Figure 2 highlights the struggles organizations face to advance maturity, as 45% are stuck at Stage 3 trying to support end-to-end processes. Higher-maturity organizations are more likely to address the cultural, technological and operational issues necessary to reach higher levels of convergence, while lower-stage maturity organizations suffer the ills of functional and systemic heterogeneity. Furthermore, convergence focuses on how the dialogues across functional silos mature from unidirectional to multidirectional collaboration across increasingly diffused supply chains.
As SCM technology progresses, companies must continue to work on improving supply chain maturity. Initially, they need to map the journey from Stage 1 to Stage 3, to get to a cross-functional view and governance and process model. Once this foundation is in place, supply chain organizations can look to enhance process optimization within their enterprise to reach Stage 4 maturity. Finally, once they master convergence within their enterprise, they can shift focus to an outside-in view of SCM to move beyond Stage 4 to achieve Stage 5 maturity.
Misaligned functional goals and objectives are major obstacles to successfully embracing convergence. Because functional organizations are vertically independent, metrics and incentives are most commonly functionally specific and routinely in conflict with other functional organizations. Consequently, convergence also demands that organizations focus more on cross-functional goals and objectives, choosing metrics wisely.
Short term, a strong-willed executive can leverage an assertive “command and control” personality, but this can be fleeting, as it is solely dependent on the will of one individual.
Dwight Klappich, VP Analyst, Supply Chain Technology, Gartner