Having a seamless supply chain, from the suppliers until the end customers, is the dream of almost all companies. Smooth flow of materials, work in process, final products and information, obviously will make a firm can be successful in the market. An effective supply chain will make a firm has competitive advantages in cost, quality, time, and flexibility. However, in reality the concept of value chain is not simple; dealing and integrating so many processes and activities as well as people into a seamless flow is far from easy.

There are a lot of uncertainties in every activity that will make a supply chain concept difficult to be implemented. For instance, late delivery of raw materials or spare parts from suppliers, broken machines/equipments, new operators/engineers who add more variations to the process, the actual sales is not as predicted in the forecast, or unmatched data among departments within a firm (e.g. each department has its own production forecast) are the examples of uncertainties along the supply chain. This article discusses those uncertainties and determines the most critical uncertainty that has the overall highest impact on the value chain. In addition, this paper also tries to provide explanations of why that particular uncertainty is the most critical compare to others.

According to Geary, Childerhouse, and Towill, from Logistics System Dynamic Group (LSDG) at Cardiff Business School (University of Cardiff in Wales), there are four general types of supply chain uncertainty, namely: process uncertainty, supply uncertainty, demand uncertainty, and control uncertainty.

In brief, those uncertainties can be explained as follows:

Process Uncertainty: this uncertainty mostly is related to a firm’s internal process.

Supply Uncertainty: the uncertainty that results from poorly performing suppliers.

Demand Uncertainty: the uncertainty because of the differences between the actual and forecasted demand. It also is related to customer satisfaction.

Control Uncertainty: this uncertainty is related to information flow that mostly driven by algorithms and control system.

From all of the above types, which uncertainty has the highest overall impact on the value chain? Based on the visibility and accessibility, we can strongly argue that the process uncertainty is the most critical part because this is the uncertainty that is really under of a firm’s management control. Internal process is relatively easier to be monitored and controlled by management compare to other uncertainties. It would be very difficult for a firm to integrate all stream values without having a strong and robust internal operation. A good process will be the core to expand and integrate the supply chain from the suppliers until the end customers.

Furthermore, the same researchers (Geary et al.) in the same article introduce the concept that is called the “well-trodden path”. This path shows the steps or sequences of a typical company would take in combating the uncertainty in the supply chain. This path also emphasizes the importance of addressing process uncertainty as the first step in attacking uncertainties. Again, the reason is clear: if a firm has a great internal process, it will be able to easier create a strong partnership with suppliers because in that condition the suppliers would know exactly what the firm wants in quality, quantity, and time. Therefore, if a firm has successfully addressed and reduced the process uncertainty, it can expand to reduce the supplier uncertainty. A good operation process will make a firm able to specify very tight requirements and choose high quality suppliers.

The next step is that management could address the demand uncertainty. This is quite complex because demand involves trends, perception and customer experience when purchasing the products/services. This is why the internal process becomes very important; a well-managed process will make a firm can adapt quickly to any changes in the market. In other words, by reducing the process uncertainty, a firm has also been in a process to eliminate demand uncertainty because good process provides flexibility. Of course there are more efforts needs to be done to eliminate demand uncertainty, such as conducting intensive market surveys and improving customer service.

When a firm is successful to reduce the process, suppliers, and demand uncertainty, then it can address the control uncertainty. Control systems (including the algorithms) only works if the physical process works. Otherwise, a good control and software application will be a waste of money. Many firms fail in implementing ERP (enterprise resources planning) software, such as SAP, because they do not improve the physical process before implementing the ERP application.
In conclusion, the process uncertainty is the most critical uncertainty because it has the highest overall impact on supply chain. In a practical perspective, that is reasonable because the internal process of a firm is the area which management has fully control to improve the result. A good performing process will allow it to be the core of the expansion of a firm’s supply chain; only a good internal process can make a seamless integration from suppliers’ suppliers until customers’customers.

References:
Geary, Steve, Paul Childerhouse, and Dennis Towill. “Uncertainty and the Seamless Supply Chain.” Understanding the Value Chain GRBUS-510 Supplemental Readings. Summer 2004.