When You Manage Your Supply Chain Like It’s 1999 (Lessons from the IRS)

Last Friday, one of my April Fools’ fake news headlines was “Forget Spreadsheets: How to Manage a Global Supply Chain with Post-It Notes.”

The truth underpinning this fake news item is that many companies still rely on manual, paper-based processes to manage parts of their supply chain. Many more rely on sending emails with spreadsheets attached, back and forth, to a long list of people. 

In short, to paraphrase Billy Beane’s quote from a couple of years ago, many companies are running their supply chains in 2022 like it’s still 1999.

What happens when you ignore this problem for too long? Take a look at the IRS.

In a Wall Street Journal article published this past weekend (“IRS Races to Hire Thousands in Hot Job Market to Get Rid of Paper Jam”), Richard Rubin highlights how the IRS is struggling to hire enough workers to process millions of paper-based tax returns going back to 2020. Here are some notable excerpts from the article:

The IRS has diverted modernization funding to find more people — thousands of them — who will circle numbers with red pens, stamp documents and manually type data into the system, seven days a week, late into the night, to get the government finally caught up on tax year 2020.

While about 90% of tax returns are e-filed, that still leaves millions of paper submissions. The IRS still processes those just like it did in the mid-1990s.

“We can’t telework,” Ms. Hussey [an IRS manager] said. “It’s a paper-driven organization.”

So, what does this cautionary tale teach us? 

First, you can’t keep throwing people at the problem, especially when unemployment is back to pre-pandemic historic lows. And as we highlighted in a recent post and video episode, the labor shortage problem is bigger than you think and not going away. If you keep following the IRS example of “diverting [technology] modernization funding to find more people,” you’ll ultimately find yourself in a death spiral.

Second, it’s the 10% that kills you. It doesn’t sound like a lot, but when you’re dealing with millions (or billions) of transactions, 10% of a very large number is still a large number.

In the case of supply chains, it’s the long tail that causes the most problems. For most companies, 20% of their trading partners account for 80% of their supply chain transactions, and most of those connections and transactions are electronically enabled (via EDI, APIs, etc.). The other 80% of trading partners and 20% of transactions, however, still rely on emails, spreadsheets, faxes, and paper to get things done. It’s that 20% that results in the most waste and inefficiency in supply chains

The bottom line is that f you keep managing your supply chain like it’s 1999, and keep delaying your digital transformation efforts for yet another year, you will find yourself in the same predicament as the IRS today.

Or maybe you’re already there.