What it really means: Supply chain control towers

Editor’s note: What It Really Means is a twice-monthly series on Supply Chain Management Review designed to clarify commonly used supply chain terms that often carry different meanings across organizations. The series aims to establish practical, shared definitions by grounding terminology in real-world planning and execution use cases. The series is authored by Andrew Byer, a former P&G supply chain leader, and Mike Dobslaw, who leads EY’s Supply Chain Planning Practice. New articles in the What It Really Means series publish on the second and fourth Thursdays of each month.

A term frequently used in discussions to improve supply chain performance is control towers. But what does that mean in real-world, practical applications?

The term control tower became popular for supply chain practitioners (particularly in logistics) starting in the early 2000s tied to growing digitization, increasing complexity (more cross-border suppliers, customers and shipments) and rising expectations to improve customer service while reducing costs and inventory. The concept was inspired and modeled on the physical structure you’d see at an airport where all the radar and instrumentation and controllers are in one place to coordinate air traffic control. In practice, a supply chain control tower is typically an organizational hub (and typically centralized) gathering information from an integrated systems platform. The scope can be variable: some control towers are focused on planning (materials, production, distribution), others on logistics (warehousing and transportation movements), while in some supply chains, the scope is demand through customer delivery. Similarly, the horizon can be variable: some companies use control towers to manage short-term (execution of existing plans) while others may extend further into the planning horizon (matching S&OP). Conceptually, the purpose and function of a control tower does not change even if the scope and horizon vary to meet differing operational needs.

The intended benefit of a control tower is having broad system visibility in one place to enable better coordination and planning, quicker response to issues, and the ability to manage change more easily across the supply chain. With the increased quality and processing speeds of digital tools, control towers operate in real-time or near real-time, providing warnings and alerts that enable supply chains to take action to prevent issues.

Organizationally, control towers can be operated within a company or outsourced to specialists (e.g. 3PL or 4PL). Organization design decision criteria will typically be both operational and financial based on the potential scale and current state. Note: the pandemic demonstrated control tower work can be done remotely, though market bias appears to be having at least hybrid employee co-location in physical hubs. 

Why are control towers valuable? They help minimize supply chain complexity for visualization and decision-making by bringing the information and people into one place. This also creates scale which can simplify change management (work process and digital tools).

Related:

What it really means: Democratizing the data

Benefits to a control tower: A centralized hub bringing increased supply chain visualization and coordination can deliver higher customer service, better response to change and faster execution. Costs can be improved by organization and digital scaling. Costs can also be improved by reducing expediting, scrap and fewer short-cycle plan changes. Cash can be improved by reducing buffers for surprises/uncertainties. The benefits show up in areas like:

• Increased sales revenue
• Higher customer service and in-stock at the shelf
• Proactive vs. reactive plan adjustments
• Reduced scrap and waste
• Less cash tied up in safety stock 

Watchouts: Unfortunately, there can be many intended or unintended barriers to starting up a control tower including:

• Current employees: Are skilled employees in the right location for the hub, or are relocations needed? If relocations are needed, is the move affordable for the organization/attractive for the employee? If outsourcing, how do you address or reallocate existing employees?-
• Creating a visualization platform
• Current digital tools (completeness of scope, accuracy of data, speed of acquiring data) and integration into the visualization platform
• Organization design to ensure rapid decision-making in the control tower and execution in the supply chain

Is a control tower right for your business? 

1. Assess your current state design (organization, digital tools, data availability)—is the design capable of proactive supply chain management meeting the needs of your business (sales, profits) and customer (service, lead times)?
2. Determine the value in creating greater operational and information system integration, and generating earlier visibility to conflicts or constraints across the supply chain (capacities, lead times, disruptions, etc.)
3. If there is a need (#1) and value (#2), assess whether to proceed internally or outsource. Consider existing employees, skills, locations, costs to relocate or reallocate employees, etc.    Siting: If you make the decision to proceed, choose the right location (whether internal or outsourced). Siting is ideally within an existing business/supply chain location or adjacent to maximize scale.

About the authors

Andrew Byer is a former P&G Supply Chain Leader.  Mike Dobslaw leads EY’s Supply Chain Planning Practice. To learn more about how EY and P&G team to support supply chain transformations please write [email protected]

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