Analysis of the article: Building the

supply chain of the future published as

part of McKinsey on Supply Chain: Select
Publications

1. Background

A supply chain is a network of companies involved in producing and delivering the final
products to the customer (Lambert and Cooper, 2000; Chen and Paulraj, 2004). In the present
context the term network is more appropriate since there is plethora of organizations involved in
producing and delivering a product to the customer. The business world has seen many forms of
supply chain relationships starting from adversary type relationships between companies to a
recent trend of a collaborative one where the supply chain collaborates. In addition, the business
world has seen vertical integration as well horizontal integration (Lambert and Cooper, 2000;
Chen and Paulraj, 2004).

Recently a new term is doing the rounds that are called a splinter supply chain. It should be
mentioned that a splinter supply chain can be thought as an organization or a group maintaining
multiple supply chains for different product portfolios. These multiple supply chains are all
distinct in characteristics (Hoekman, 2014).On the contrary traditional supply chain is
conceptualized by scholars as a supply chain model that is applicable for all product portfolios
catered by an organization typically aimed at lowering transaction costs (Mason-Jones and
Towill, 1997). In addition, the authors of the article points out that that traditional supply chains
are designed for high volume production and are labor intensive meaning that production is
generally done in places like China where production cost is low and then transported to the
point of consumption.
There is little doubt that times are changing. The change includes economic landscape, consumer
choices and expected service level. Hence, there is new winning mantra or yardstick that is
coming into play. This is essentially a question regarding product development and the
associated services. In essence, innovation in the field of product development and marketing
campaign has meant that there are certain products that customer wants customized and on
demand. These products are often termed as volatile which corporations finds difficult to
forecast.

The situation in the coming years could evolve and further changes are due. The steady gain
made by various economies that were considered emerging in years gone by has made put
forward some stark ling proposition. One is that these new big economies like China, India are
attractive markets. Hence, keeping into consideration that business corporations are global these
days, they have to actively consider their traditional markets in the Europe, America, Japan etc
and also the new ones like India and China (Boehe, 2007). In addition, the changes in economic
landscape and potential cost increase has meant that the traditional production hubs like China
may not remain as attractive as before (Winters and Yusuf, 2007; Heaney, 2011). Therefore a
key question arises whether the supply chain that the corporations have put together over the
years needs change. In investigating this question one also has to consider other factors that are
associated like energy price, transportation cost.

2. Authors and sources of the article analysed

This report is an analysis of the article Building the supply chain of the future published as part
of McKinsey on Supply Chain: Select Publications (Malik et al.,2011). The article is a very
intriguing piece of literature where the authors predicts or advocates for a hybrid form supply
chain called splinter supply chains rather than a more traditional form as seen today.

The article is an industry report on supply chain issues published by the firm McKinsey which is
a firm operating worldwide. McKinsey is a research consultancy firm and has consultants,
information professionals, scholars and researchers in its ranks (McKinsey, 2016). The firm
provides advisory service to top management and also coaching to mid level and line
management to support implementation of innovation, changes, concepts and new processes. In
particular the firm has expertise on providing data analysis related support and facilitating
business recovery for its clients. The agenda of this particular articles is summarized below-

The authors attempt to inform and warn various industry stakeholders and firms
regarding the impending and ongoing changes in the global business environment
heightened by various geographic factors such as increasing wages, currency
fluctuations, transportation costs, consumer preferences.

In essence the authors ague and advocates for changes in the current supply chain in
place for various firms across the world

One of the latent objectives appears to be to inform its audience that McKinsey can
support firms willing to go undergo changes in supply chain formations through data
support, analyses, training and consultancy.

3. Valid reference and authenticity of the article

The building of the supply chain of the future published as part of McKinsey on Supply Chain:
Select Publications (Malik et al.,2011) refers to some useful information and data. The article is
mainly based on a case study on splinter supply chain. The unnamed organization that is the
focus of the case study appears to be a large one who traditionally had its production hubs in
places like China whereas they maintained small hubs in North America. The customer base of
this organization is located in North America. The article provided a volume and demand
volatility chart of various products for the organization. The chart is very informative and
interesting. The chart is provided in Figure 1 for reference.
 Figure 1 Volume and demand volatility of the studied company ((Malik et al.,2011)

It is evident from the chart that only 10% of the products are actually generating more revenue.
Hence, the information is provided in the paper is very telling and makes sense why this
company have started producing this 10% of the product in USA whereas they kept producing
the rest of 90% offshore in places like China. The article mentions that further profit can be made
by providing better service and making products make to order by using such approach.
However, the article didnt mention how much cost is saved in this regard. In addition, the article
cites a survey that was conducted amongst global executive regarding supply chain risks.
However, further details regarding the survey were not provided. In summary, I think there are
data that is reliable that has been referred to in the article. However, further information would
have substantiated their argument further.

4. Key messages of the article

The article sheds lights into a very interesting supply chain practise. In addition, it draws
attention to the looming changes that are likely to take place in the near future. Following is a
summary of some the key messages from the article:
Uncertain business environment

The article makes some prophetic statements regarding the uncertain business environment that
is upon us and hints that it can get further uncertain in the future. Some of the factors that the
authors of the article have identified have valid grounds. For example, the affect of the economic
downturn worldwide has without any doubt increased the level of uncertainty in the business
environment. The article argues that supply chains that are in place now can become
economically unavailable in the future due to the existing and to be compounded uncertainties.
The authors have pointed out that traditional production hubs such as China can become
expensive to manufacture in the future due to rise in labour cost. In addition, there are factors
such as oil price fluctuation, currency fluctuations, logistic disruption that can make offshore
production complicated. Hence, the article argues that uncertainties can increase complexity. In
support of the above mentioned argument the article has pointed out to various sources including
opinions of the business executives who have supported such idea of complexity and a chance of
a shift in global economy.

Corporations and organizations have to innovate in regards to supply chain

As mentioned briefly in starting section, the report argues that the existing supply chain of
having similar supply chain for all product portfolios has already started to become outdated.
Organizations and corporations have to think to adopt multiple supply chains for different
products. The term used in the article is nimble and splinter supply chain which can be thought
a chain that be quickly changed and modified without much hassle and cost. The article mentions
that few organizations and corporations have already started thinking in this line. The article
further identifies that if and when an organization decides to go for splinter supply chain a key
decision that these organizations have to decide on is how many splinter supply chain to be
configured. The article suggests that such organizations looking to accommodate splinter supply
chain should conduct detailed analyses of key product portfolios and supply chain resources in
order to make that decision. The article argues the impending complexity that is looming can be
offset by using splinter supply chains. Another issue that the author highlights is that splintering
supply chain can enable the corporations and organizations to manage assets better resulting into
better performance.

Product volatility

Another important issue that the paper brings up is that of product volatility. The term volatility
can be associated with uncertain demand of the product and difficulties in forecasting (Birou
and Fawcett, 1994). In the article the authors argued, incase of some volatile products,
organizations are suffering to provide adequate customer service and satisfaction. The paper
went out to stress that, for such products short distance supply chain can be more effective way
to improve customer service.

5. Missing points in the article

The article is well written and has been supported by various observations and facts. However,
there are issues that has been overlooked or not discussed. It is imperative to say that an
organisation do not operate by itself, rather it is a part of chain; the concept can be
conceptualised as a network since there is a host of organisations involved in producing the final
product. In recent times, a very significant concept that has been going around is supply chain
collaboration. In the present context, organisations and corporations are not just competing
against each other rather they are competing as networks. The trend has seen various
organisation forming alliances and various types of strategic level collaboration between
themselves. Some, of the strategic level collaboration involves long term planning, vertical
integration in supply chain and a variety of complex interactions. (Bowersox, 2003; Barratt,
2002; Johnson, 1999). In addition, the business world irrespective of borders has seen various
forms tactical level collaboration which involved inter-organization business process re-
engineering, joint planning, resource and intelligence sharing (Bowersox, 2003; Barratt, 2002;
Whipple & Russel, 2007; VICS, 2004). In the circumstances, to modify the existing supply chain
into a nimble and splinter groups may not be as easy. The article by McKinsey on Supply Chain
(Malik et al.,2011) did not discuss any issues related to the difficulties that could arise on
forming these new kind of splinter supply chains. Such move may require drastic decision
making where supply chain and business relationships built and harnessed over the years can be
shred to pieces. There may be various types of business retaliation if such practices are
widespread. Hence detail analysis of the circumstances for each organization and business needs
to be conducted. It is my view that, splinter supply chain is certainly an interesting option but it
may not be the best solution for all. For large corporations, with a very vertical supply chain
structure it may be viable but for others tangled in a web of collaborative relationship it may not
be appropriate. Another, important issue that needs to be pointed is that the authors of the article
appear to be making holistic assumptions regarding their suggested supply chain concept. In
doing so they do not differentiate between various industry sectors. However, in reality there
may be only various category of industry that can take the route of splinter supply chains.

Another criticism that can be made regarding the article published in McKinsey is that there is no
discussion on theoretical implications or applications. Theories such as Porters five forces
theory prescribed years back is still relevant. Although the article mentions that various factors
can trigger a move towards splinter supply chain however it was not discussed related to how the
five forces such as power of suppliers, power of customers, threat of new entrants and more
importantly competitive rivalry would play (Porter, 2011. In addition, the author could have also
discussed whether how the transaction cost theory (Williamson, 2008) explains move such as
splinter supply chain or what would be the power structure and interplay be in such supply chain
relationships.

6. Conclusion and usefulness of the article analyzed for me

In summary, the article The Building the supply chain of the future published as part of
McKinsey on Supply Chain: Select Publications (Malik et al.,2011) aptly identifies the
impending changes in the global economy that has been taking place and potential further
changes that are in the horizon. Such changes can have big impact on supply chains and
business. These factors can span from economic factors such as high or low growth, inflation,
currency rate fluctuation, oil prices, transportation and logistics issues etc. There is enough
justification to change the existing supply chain structure.

The article suggests that the business world in the circumstances will be moving to a more
splinter type supply chains. Here, by splinter supply chain the article means multiple supply
chains for various product portfolios. The shorter distance supply chains can be used for volatile
products in which case forecasting is difficult. Whereas a long distance supply chain can be used
for products with less profit and high volume. The later kind of products are believed to be easier
to make forecasts for. The move to a splinter and nimble supply chain may be a necessity not a
reality, however, as I have identified in this literature it may not be the solution for all supply
chain networks. In particular, since myriad of collaborative supply chain relationship has been
fostered over the years. It is none the less a very informative article ushering new ideas and light
into new practices in supply chains. I believe the article will be a very important literature for me
which I can fall back to not only in further educational activities but also in my career in the
future. It will help me to recollect the concept and message of splinter supply chain and how it
has already been applied in the field. Hence, it will help me to contribute effective in my work
place, if and when I do get the chance.
Reference
Barratt, M., 2004. Understanding the meaning of collaboration in the supply chain. Supply Chain
Management: an international journal, 9(1), pp.30-42.

Birou, L.M. and Fawcett, S.E., 1994. Supplier involvement in integrated product development: a
comparison of US and European practices.International Journal of Physical Distribution &
Logistics Management, 24(5), pp.4-14.

Bowersox, D.J., Closs, D.J. and Stank, T.P., 2003. How to master cross-enterprise
collaboration. SUPPLY CHAIN MANAGEMENT REVIEW, V. 7, NO. 4 (JULY/AUG. 2003), P.
18-27: ILL.

Boehe, D.M., 2007. Product development in MNC subsidiaries: Local linkages and global
interdependencies. Journal of International Management, 13(4), pp.488-512.

Chen, I.J. and Paulraj, A., 2004. Towards a theory of supply chain management: the constructs
and measurements. Journal of operations management, 22(2), pp.119-150.

Hoekman, B., 2014. Supply chains, mega-regionals and multilateralism: a road map for the
WTO. Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS, 27.

Heany, B., 2011. Supply chain visibility and excellence. Aberdeen Group.

Johnson, J.L., 1999. Strategic integration in industrial distribution channels: managing the
interfirm relationship as a strategic asset. Journal of the Academy of Marketing Science, 27(1),
pp.4-18.

Lambert, D.M. and Cooper, M.C., 2000. Issues in supply chain management.Industrial
marketing management, 29(1), pp.65-83.

Mason-Jones, R. and Towill, D.R., 1997. Information enrichment: designing the supply chain for
competitive advantage. Supply Chain Management: An International Journal, 2(4), pp.137-148.
Malik, Y., Niemeyer, A. and Ruwadi, B., 2011. Building the supply chain of the future.
Mckinsey Select Publications.

Mckinsey, 2016. Mckinsey Website. Accessed[ 22 March 2016] Available on:

http://www.mckinsey.com/about-us/who-we-are

Porter, M.E., 2011. Competitive advantage of nations: creating and sustaining superior
performance. Simon and Schuster.

VICS, V.I.C.S., 2004. Collaborative Planning Forecasting and Replenishment (CPFR).

Whipple, J.M. and Russell, D., 2007. Building supply chain collaboration: a typology of
collaborative approaches. The International Journal of Logistics Management, 18(2), pp.174-
196.

Winters, L.A. and Yusuf, S. eds., 2007. Dancing with giants: China, India, and the global
economy. World Bank Publications.

Williamson, O.E., 2008. Outsourcing: Transaction cost economics and supply chain
management*. Journal of supply chain management, 44(2), pp.5-16.