Fifteen Eighty Four

Supply chain management has often been perceived as the practice of having the right product, at the right time, in the right place, to meet market demand without holding excess inventory. Naturally, such a view makes its ultimate objective the perfect matching of supply and demand. If supply exceeds demand, companies face inventory-holding costs. Conversely, when supply falls short of demand, they incur opportunity costs due to unmet demand. Thus, aligning supply with demand helps reduce these costs and increase profits.

Despite the importance of supply-demand matching, some companies have shown declining sensitivity to it due to digital innovations. For example, “firing customers” has become a popular business concept, deliberately reducing certain demand streams. Likewise, companies such as Starbucks have innovated their business models to generate non-operational profits (e.g., free cash flow from apps used in financial markets). These strategic shifts allow decision makers to reposition supply chains in ways that diverge from the once central objective of perfectly matching supply with demand.

In my book, Re-imagining Supply Chain Management, I explore why this shift is happening. My journey led me to a deeper understanding of the dimensions and fundamental trade-offs of supply chain management.

Supply chain management involves several operations (4), where companies use their own resources (3) or employ other vendors (2) to move products (1) from upstream suppliers to downstream customers.

1. Products: Product assortment decisions directly affect supply chains, forcing a trade-off between standardization vs. customization.
2. Vendors: Vendor selection decisions depend on whether companies carry out production and logistics in-house or outsource them to contract manufacturers. The trade-off here is between in-house production vs. outsourcing.
3. Resources: Resource management determines whether demand is met quickly—by keeping excess resources—or more economically, at the cost of longer customer wait times. The key trade-off is between responsiveness vs. efficiency.
4. Operations: Operations can be managed proactively by building up inventory to improve service levels for customer orders, though this often leads to higher inventory-holding costs.

These four dimensions are interdependent rather than distinct. For instance, product assortment decisions influence vendor selection, while vendor choices affect resource management. For that reason, the four dimensions must be linked to business strategy through revenue analytics. This reveals a fifth trade-off: revenue growth vs. supply-demand mismatches.

In the book, I focus on this fifth trade-off together with the traditional four to develop supply chain strategies tailored to different business models and organizational sensitivities to mismatches. I also explore the digital transformation of supply chains, with particular attention to its design and implementation challenges. My hope is that this work serves as a valuable resource for those interested in supply chain management and the digital transformation of businesses. The structure in the book also has the potential to shape agentic AI developments in supply chains.