Inside the Evolution of Supply Chain Management
Supply chain management (SCM) as a discipline encapsulates how companies are managing the flow of goods, information and finances involved in the production and delivery of their products or services – right from their original source to the end consumer.
In a world where the words ‘uncertainty’ and ‘disruption’ are frequently being bandied around – and with good reason – companies must ensure the quality of their SCM is almost faultless.
Here, a roundtable of experts offers three different perspectives on the importance and future of supply chain management, as well as the integration of emerging technologies and sustainability credentials.
Our experts are:
- Dan Myers, Managing Director UK&I at XPO Logistics
- Brian Gerritsen, AVP and Manufacturing Sector Lead at Travelers
- Dr Tom Goldsby, Professor at the University of Tennessee (UT) Haslam College of Business
How crucial is faultless SCM amid increasingly volatile conditions?
Dan Myers
Faultless is a high bar indeed, but it’s always something to strive for. The supply chain is the link from raw materials to the consumer. It doesn’t matter how good the product is if you can’t manufacture or supply it to the customer. The supply chain is the lifeblood of any business and, as such, the economy itself.
In the post-COVID world, supply chain resilience has become a key topic for most organisations. The working environment is undergoing unprecedented changes, with ever-changing customer needs, supplier demands, geopolitical events and rising capital costs. Anticipating customer needs through a comprehensive view of the end-to-end supply chain and inventory is now more crucial than ever. Equally important is the establishment of clear responsibilities and governance in the overall operating model, which is essential for effective supply chain management.
Supply chain management includes the use of various buffers to manage volatile conditions. These include inventory buffers and capacity buffers. The best way to manage volatile demand is to build a lot of inventory. XPO Logistics, with its expertise and dedication, assists customers in adapting to this new volatile environment that is here to stay, instilling confidence in the partnership.
Brian Gerritsen
The holy grail is faultless, right? But it's almost unattainable because disruptions happen and will continue to happen. I think what we can all agree on is that the fragility of the supply chain has been tested probably more so in the last 5-10 years than we’ve seen historically. And I think we can anticipate those disruptions to persist, whether it's geopolitical, weather, civil unrest, raw material disruption as we think about the global supply chain. In the US, the collapse of the Baltimore Bridge disrupted a very significant port and brought the fragility of our domestic supply chain under a microscope. The question is, how do you stay in control of the things that are in your control? That’s our theme when we talk internally about this topic, as well as when we consult with our customers.
Dr. Tom Goldsby
While it’s true that business customers and consumers expect faultless provisions, there’s simply no way we can avoid the vagaries of a VUCA world – one that is highly volatile, uncertain, complex and ambiguous. Yet, our supply chains can be configured and executed in a way that allows for some degrees of freedom or optionality that make the service rendering appear fault-free, even though our execution is challenged.
While most businesses have clamoured for greater resilience in their organisation and supply chains, we believe that agility is a higher, more fruitful calling. What I mean by that is that resilience tries to avoid bad things and there is simply no way to steer clear of all potential disruptions. Rather, agility provides a means to navigate these disruptions and seize the opportunities found in them. Our research indicates companies that excelled during the pandemic and beyond not only avoided disruption, but leveraged newfound capabilities to gain market opportunities. We think that’s a better play into the future.
What benefits can companies enjoy thanks to enhanced SCM?
Dan Myers
Enhanced SCM brings many benefits to companies, including decreased cost, improved operational efficiency, better financial visibility and insights, enhancement of customer satisfaction and brand credibility, smarter purchasing decisions, reduction of total manufacturing costs, reduced inventory carrying costs and storage capacity, increased output, better cooperation, enhanced supply chain network and eliminated delays. These are theoretical advantages and tangible results that can transform a company's operations and bottom line.
An adequate supply chain frees up time to focus on ensuring that a company is world class at its core activity. This will reduce costs, increase working capital and make the company more sustainable.
Brian Gerritsen
At Travelers, we look at supply chain through a risk management and insurance perspective, and the reality is not everything is insurable. Some fragility in the supply chain is just going to be a business risk that you can't insure.
We think of the supply chain in three tiers: the upstream portion of the supply chain, including your supplier network, everyone that's providing you with raw materials or component parts or maybe subcontractors; the second tier is what we call in-plant, which is from a manufacturing perspective, and that covers operations within your four walls; and then of course the downstream – how do you get your goods to market?
Ultimately, the goal is to remain competitive, productive, profitable and maintain those margins that either your board of directors or shareholders are expecting, even throughout unexpected circumstances.
I think having good visibility into your supply chain can really help a business understand the readiness of suppliers and provide some confidence that you’re going to receive goods when you need them. But part of that is having a network of trusted back-up suppliers. We saw during the pandemic that companies were relying on one or two raw material suppliers or component parts and, when there was disruption, they didn’t have back-ups and then there’s this ripple effect.
Understanding trade practices, laws, standards, currency fluctuations, cultural differences, the geopolitical area – even time zones – really gives you control relative to political and geographic constraints.
Dr. Tom Goldsby
Supply chain excellence not only allows a company to meet customer needs and to do so with acceptable margins, but it should also help to advance the business. We should not only take the marching orders thrown over the wall by sales and commercialisation areas of business, but we should also be able to lend an innovation capacity that allows new value creation opportunities to manifest from the supply chain.
Traditionally, supply chain professionals have stiff-armed innovation, because it challenges our routine metrics around productivity and efficiency. If, however, supply chain professionals are looked toward for innovation and the measurement rubric expands to incorporate growth and bottom-line contribution, then supply chain professionals should be more accepting of change and, in fact, leading change in our organisations – whether that means expanding into new geographical markets, product, service or experience areas, or overhauling the ways that we deliver traditional provisions.
So, there is an immense opportunity to redefine the work that we undertake. Given the fact that supply chain represents the execution of business strategy, we need to seize those opportunities and not stiff-arm them.
To what extent are today's SCM processes placing greater emphasis on sustainability?
Brian Gerritsen
It all starts with us as consumers. We're demanding more visibility into sustainability practices and cleaner products that go to market in a much more sustainable fashion. Businesses have to react and supply chain management protocol is going to have to lean into the customer expectation and demands.
This can put pressure on supply chains. If a business is used to dealing with particular suppliers who maybe don't pass the consumer’s litmus test, how does that business start working on a transition to suppliers that meet those expectations? In certain segments that can be difficult because there are limited raw material suppliers. So, how do you find that diamond in the rough when your competition is also looking to source from those companies as well?
Companies are on an interesting journey with respect to their ESG protocols and the supply chain is a big part of that because they have to be transparent within their customer advertising.
The other piece – getting the product to market as sustainably as possible – has a lot to do with fuel consumption and optimising that along the supply chain. Are you nearshoring or onshoring your supply chain? Are you utilising different suppliers that are adopting better practices with respect to carbon output? Which routes are you taking? Are you going via land or sea?
Dr. Tom Goldsby
Businesses of all kinds are coming around to an understanding that sustainability will be a way of life moving forward. Customers expect it. It’s good business. It doesn’t just mean meeting regulatory requirements and avoiding negative headlines. Instead, it means doing the right things right for the business, its customers and other stakeholders.
Granted this perspective requires a different mindset, but it’s possible to achieve better business results while also serving as good stewards of the environment and protectors of societal goals and needs.
If you look at the United Nations Sustainable Development Goals, supply chain management plugs directly into all 17 of them and leads in terms of fulfilling a great many of them. It’s impossible to be truly sustainable without sustainability and triple-bottom-line orientation baked into supply chain decision-making and actions.
Dan Myers
We all share one planet and the impacts of climate change are becoming increasingly apparent, the results of which are of genuine concern. As a supply chain business, we represent our customers' Scope 3 emissions – often considered the most challenging to tackle. So, we accept the responsibility of providing our customers with support, expertise and leadership in this area. We were the first in the industry to have a dedicated lead on sustainability, a catalyst to help drive and sustain change throughout our business.
We’re backing up the investment in people with investments in reducing our carbon intensity and that of our customers. Around 70% of our home delivery fleet in Ireland is carbon neutral and emissions-free thanks to a significant investment in BEVs. By the end of 2024, we’ll have four certified carbon-neutral sites in the UK; we buy 100% Tier 1 renewable power for our sites; we’ll convert around 15 million litres of diesel to HVO this year alone; we’ve moved more goods to rail to reduce road emissions – the list goes on and on. We’re about doing the right things, not tomorrow but today.
How can companies effectively integrate emerging technologies into their SCM?
Brian Gerritsen
These technologies – whether it’s generative AI (Gen AI) or traditional AI, machine learning (ML), data analytics, automation or robotics – have arrived. Our proprietary research suggests many manufacturers have adopted them and they’re looking to invest more over time. And that's good news because they’re going to be gaining operational efficiencies and better insights, not only into their own business but into the supply chain as well. As businesses start to explore the benefits, they’re going to be able to reduce costs and have more control over their upstream and downstream activities.
When you think about the global supply chain, your raw materials and components are coming from all over the world; you're manufacturing a final product; and then you’re shipping it back out into the world. But the data points you have come in different shapes and sizes, different languages, different currencies. That’s where AI and ML can really help a business get some insights into aggregating and finding some of those optimisation points among a slew of ones and zeros, which is really exciting.
Dr. Tom Goldsby
At UT, we speak of how digitalisation can help organisations see, think and act better, faster and more adeptly. We’ve witnessed not only technological innovations, but also the more rapid adoption of these innovations in recent years in search of seeing, thinking and acting in supply chain provisions.
The pandemic served as an intense motivator for the adoption of many of these technologies. We simply could not meet the needs of customers without resorting to some form of aid that these advanced technologies could afford. I know several organisations that had experimented with AI, control towers and end-to-end visibility tools, among others, that felt the need to jump into the pool when demand grossly exceeded our capacity. Keep in mind that our capacities were hamstrung by the provisions we undertook to keep workers safe, including social distancing in our operations and remote work of our administrative activities. It’s likely that our openness to these tools accelerated by about five years in that first year of the pandemic alone. As a result, efforts to digitise supply chain decision-making and actions are better proven and we’ve learned they can help to ramp up, down or flex our businesses to meet a rapidly-changing marketplace.
To read the full story in the magazine click HERE
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