The Building of Horizontal Supply Chain Processes

As the great stumbled, the path forward was horizontal processes. The most common are revenue management, sales and operations planning, supplier development, and corporate social responsibility. These horizontal processes bridge the links of the supply chain to give it structure, purpose, and connectivity. 

In the evolution of supply chain management, the first horizontal processes were transactional. They were billing systems created to automate the order-to-cash and procure-to-pay processes. These systems of record were implemented using standard out of the box functionality in enterprise resource planning. However, for these new horizontal processes, there is no standard out of the box system for implementation. 

From 1990 to 1998, in the early phase of supply chain evolution, the supply chain pioneers focus was on the development of vertical processes. It was a zealous focus on optimizing vertical silo processes of make, source, and deliver. As a result, there was little cross-functional overlap and as a consequence, there was no way to orchestrate tradeoffs in supply chain execution. In the last five years, the focus on planning processes has shifted from vertical to horizontal. In addition, from an inside-out (within the organization) to an outside-in (from the external markets in to the organization) focus. Both of these shifts are fundamental to the building of market-driven value networks. 

A driver was total cost management. In 2005, fewer than 5 percent of companies surveyed knew their total costs. Today, it is 24 percent. This is a small improvement as well as a major problem. Why Historically, the supply chain has been the de facto bank. When companies want money, they turn to the supply chain but the lack of understanding of total costs leads to bad decision making. 

When it comes to building market-driven value networks, the toughest group to convince is the finance guys. You have to get top management and the top board convinced on why it matters. The metrics and incentives are so different. There is a massive hole in the market for people that understand it. 

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