This week sees the publication of an important new book about supply chain. Breakthrough Supply Chains will be available from May 26.
The book is a guide to rethinking and reinventing supply chains using breakthrough thinking, so that business leaders can benefit their organisations, the economy and the world
It is written by four distinguished experts in the field:
- Christopher Gopal, a global supply chain & operations consultant & educator
- Gene Tyndall, former EY Senior Partner for Supply Chain Management
- Wolfgang Partsch, the founding father of supply chain management
- Eleftherios Iakovou, Logistics Innovation Director, Texas A&M
The following is an edited extract of the opening chapter, called ...
What are supply chains really?
Supply chains are quite simple in concept, regardless of how complex their structures and operations may be. Many companies have succeeded in making their supply chains far more complex than they ought to be.
We define supply chains as being composed of five end-to-end processes: plan, buy, make, move, and deliver. We then identified five major elements that flow the source of supply to customers: materials; product; cash; information and data; workflows; and sell.
The last item, ‘sell’, is added because of the rapid development of e-commerce, and includes new and innovative ways of delivering to individual consumers (the final mile), managing inventory to enable fast delivery, and the new competitive aspect of customer returns.
These ‘mega’ processes reflect the fact that forward supply chains start with suppliers and conclude with the end customers, while the reverse supply chain starts with the consumer and concludes with the disposal.
Putting it simply, the objective of supply chain is to match customer demand with product supply within the following guidelines:
• At a competitive cost
•With minimum (or optimum) working capital
• With maximum supply assurance
• With the required quality
• At minimum risk
• With national security considerations
• Within environmental and social mandates
• Delivered when the customer wants it, to where the customer wants it
Customers are dissatisfied with out-of-stocks, late or delayed deliveries. On the other side of the ledger, businesses are harmed by overstocks through reduced margins, excess working capital needs, and scrap.
These demands are made more pressing by the increasing growth of e-commerce, personalisation, information requirements, and delivery.
Despite this mission-critical set of objectives, supply chains have historically been regarded as a ‘back-office’ set of functions – until something goes wrong.
Several factors have contributed to the emergence of supply chains to a front-and-centre driver of business success – and failure. These factors include:
- Covid-19 pandemic and resultant product shortages of everything from medical supplies to paper goods, building materials, and food
- The geopolitical threats surrounding rare earth materials, driven mainly by China’s current control of the rare earth mineral supplies, their increasingly belligerent attitude toward Taiwan and the West, and their ‘conflict minerals’ mining issues
- The Russia-Ukraine conflict and threats of conflict in Asia
- The increasing publicity given to sustainability—the environmental, social, and governance (ESG) impacts of global supply chains
- The understanding that corporate tax rates and national policy are a prime driver in sending jobs and capability to other countries
- The offshoring of manufacturing and design that has cost jobs, disrupted communities, put national security at risk, and lost hard-developed intellectual property for Western countries
- The realization among the public and in political circles that we don’t exist in a “free trade” world with any sort of level playing field, to the chagrin of executives and others whose success and compensation are vested in propagating that narrative
Understanding supply chain also involves addressing some common myths.
Supply chain is not synonymous with logistics
Logistics refers to physical products and materials and deals with the transportation, delivery, and warehousing functions. Supply chains are far broader and deal with the entire spectrum from supplier to customer and back, including all the major processes and flows.
Supply chains are only about cost and expense control
In the past, the perception linking supply chains to frugality was owed to the high costs of freight, warehousing, and inventory storage. Today, however, supply chains are a source of competitive advantage – a powerful instrument to drive sales and customer loyalty, ensure supply and national security, minimize risks and maximize cash, and minimize, in a cost-effective way, the impact on the environment. It is far more than cost and expense control.
Advanced tech will replace people in supply chain
There are always certain dislocations when technology is introduced; however, people will always be needed to make decisions on strategies, service levels, and customer satisfaction.
Repetitive tasks can be often done by automation, but supply chain management requires smart managers to plan, design, organize and adapt to market changes, and execute everything effectively.
More importantly, managers are needed to make the crucial trade-off decisions in terms of the environment, sourcing, security, customer service, profitability, and resilience.
As a wider audience is interested in supply chains and supply chain management, it is important to sketch what future supply chains will look like.
Supply chains of tomorrow
The supply chains of tomorrow will likely increase in complexity, with pressure from multiple stakeholders and the government – driven from business, activist, and ideological viewpoints.
Digitalisation of processes and business models, risks, increased customer demands, and advances in technology will drive analytics and data-driven decisions, trade-offs, innovation in financing and business models, and new strategies for differentiating services for customer benefit.
