future

Managing supply in the firm of the future

Daniel Dumke — Mon, 27 Aug 2012 11:56:31 +0000

This week I would like to think about the future of supply chain management. Cox and Lamming wrote a corresponding article titled: “Managing supply in the firm of the future”.

Methodology

It is difficult to make predictions, especially about the future. So to infer about future development the authors use case studies and historical analysis.

Short history of corporate sourcing

Within the last century business models have changed quite a lot in nearly all industries.
Aa hundred years ago industries like watchmaking were focussed on small customer niches with few and wealthy customers accustomed to great service.
This changed with industrialization and the advent of mass production (and mass services).
Companies thrived in an environment where new customers were less sophisticated, labor was cheap and plenty and supply compliant.

With the rise of the customer (“The customer is always right”) this changed, when customers demanded even faster, smaller and cheaper products.

The model of purchasing born in the early decades of this century, during the heady days of mass production, has lasted almost unchanged to this day. It is based upon the purchaser having a wide spread of potential suppliers, each of whom is able to supply in accordance with a specification, without deviating from it. When it appeared that the customer was not able to provide this specification, the supplier’s expertise could either be bought (leading to the birth of the vertically integrated mass production leviathans) or extracted under the threat of loss of business within the customer’s supply market.

Themes for future development

In research four key themes emerged in the conceptual development of the management of “supply chains”. These should form the basis for the future development of the perception of the supply function.

Theme 1: It is necessary to take a total supply chain view
Key insights:

“The consumer is perceived to be at the end of a supply chain—a series of value-adding events and activities that leads to the provision of a desirable—valuable—product or service.”
“Supply chain management is […] a process of realignment of activities, from each firm’s point of view, in order to reduce value losses, so that the output from the total chain satisfies the consumer and results in the success of all parties to the chain.”
“Within the [value] stream are barriers—interfaces between companies. The management imperative is thus to design those interfaces with minimum impediment, to allow value to flow.”

Theme 2: The chain is an unsatisfactory metaphor: the firm is part of a network
Key insights:

“The so-called ‘chains’ often contain looped relationships (where the customer is also a supplier to the supplier), lateral links (where the supplier is a supplier to both the customer and another supplier), dependencies (where the performance of one supplier is intrinsically linked to that of another) and other non-linear facets which deny the convenience of thinking in simple terms.”
“Adopting a network perspective can lead to perceiving supplier relationships as indistinguishable from customer relationships.”
“The contribution of the network metaphor to understanding the matter to managing value comes from its method of grappling with complexity.”

Theme 3: The firm concentrates on its core competencies and outsources everything else
Key insights:

“Managers have, for some time, been encouraged to view their firms as a combination of ‘core’ competencies – those which it is deemed essential to own in order to compete in a market – and, by process of elimination, ‘non-core’ competencies.”
“[…] the issue of whether to ‘make or buy’ is not straightforward; it is always a problematic issue for the firm which may be resolved either through vertical integration or through outsourcing. The key strategic deci- sion for the firm is to decide what the boundaries should be between the two extremes of internal or external contract.”

Theme 4: The firm is an unsatisfactory unit of analysis: the flow of value takes place in a loosely aligned array of assets and competencies over which no one commercial organization has ultimate control
Key insights:

“The further away from the core competencies of the firm, the less there is a need for medium asset specific skills to be vertically integrated, and thus the more support may be expected for outsourcing the activity.”
“[…] firms are best viewed as a ‘nexus of contracts’. The importance of this interpretation is that it forces us to see firms not as fixed entities, existing as objects within a static market structure, but as potentially fluid and flexible constructs whose internal structures and external boundaries may change as circumstances dictate and opportunities require.”

Outlook

The themes sketched above lead the authors to several conclusions about the future outlook of supply (chain) management.

The future role of negotiation, contracting, and developing incentives will, if the analysis presented here is correct, be of immense importance for the future success of firms. This arises primarily from the insights of transaction cost and agency theory, and the realisation that the boundaries of the firm are not, nor should be, fixed in time or space.

This means that in the future there will be a definite need for professional managers trained in the arts of – and perhaps with a ‘nose’ for – assessing the relative costs and benefits of internal and external contracts for the successful achievement of a sustainable position on specific supply and value chains

The first task in a strategic supply management approach is to undertake value chain positioning. This refers to the process by which the key decision makers within a firm consciously undertake market positioning through an analysis of the totality of supply and value relationships within their markets. This is achieved through the use of margin-cost analysis.

Conclusion

This article was published 15 years ago and it draws the picture of a future with fluid ever-changing interfaces between companies. Where companies are steered as a collection of contracts.
When I read the article I was amazed how good the selected themes still fit the current development. Even though some parts of the “predictions” seem to have come true (eg. the professionalization of supply chain management), my overall impression is that organizational hurdles prevent companies from being shaped in this way.
But this also may only be a matter of time.

Reference:

Cox, A., & Lamming, R. (1997). Managing supply in the firm of the future European Journal of Purchasing & Supply Management, 3 (2), 53-62 DOI: 10.1016/S0969-7012(97)00002-6

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Supply Chain Compliance for Risk Mitigation

Daniel Dumke — Wed, 24 Feb 2010 14:33:00 +0000

Supply Chain Compliance

Apple Inc. recently published their Supplier Responsibility Report (PDF) for 2009.

In this report Apple elaborates what measures they are taking to ensure a broad set of goals at the inbound side of their supply chain. They especially address possible problems at their asian suppliers.The Supplier Code of Conduct contains the following topics:

Labor and Human Rights (eg. fair treatment, working hours, wages)
Health and Savety (eg. emergeny prevention, ergonomics)
Environmental Impact (eg. wastewater management, hazardous substance management)
Ethics (eg. whistleblowing, protection of intellectual property)

Instead of just including the code within supplier contracts, Apple also monitors compliance through audits, and promotes training of the suppliers employees.

Risk Mitigation

Outsourcing is one possibility for a single company to mitigate some supply chain risks by moving the risks to the suppliers. The financial impact of some risks usually will be covered in the contract by the means of penalty payments for non-performance. Apple is making use of this measure for a long time already. The slogan “Designed in California Assembled in China” is printed on each Apple product.

But outsourcing cannot reduce all SC related risks to zero, since many still affect the company. In the following I would like to point out three measures from the Supplier Responsibility Report and their implications for supply chain risk:

Child labor, insufficient waste management,… not only pose an ethical problem, which must not be neglected, but of course also has implications for the public opinion about Apple and its products possibly annihilating the current campaigns for hazardous substance reductions.

Monitoring the suppliers management system can give early warnings for mismanagement at the supplier, possibly affecting the timeliness of deliveries.

Training of the suppliers employees might increase productivity, job satisfaction, therefore reducing quality issues.

Doing a cost benefit analysis on these topics would be myopic, since it neglects the ethical implications of the measures. On the cost side alone measures like training of the suppliers employees or the ban on child labor seem to be quite cheap.

Conclusion

From a research point of view it is important to integrate these efforts into a holistic SCRM approach. This also shows that supply chain (risk) management and ethical / sustainable behavior cannot be viewed separately in a global supply chain. The interactions between risks / opportunities on the one hand and ethical and sustainable behavior on the other are so complex, that both have to be included in the same model to make the best decision possible.

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Internal

Supply Chain Manager of the Future

Daniel Dumke — Sat, 20 Feb 2010 14:50:00 +0000

“Management Development and the Supply Chain Manager of the Future” by J. Mangan and M. Christopher (2005) aims to bridge the gap between current offerings of knowledge providers (eg. universities), current capabilities of users (eg. students and managers) and buyers (aka. companies).First it seems to be a good idea to get an impression of the demographics of the current supply chain managers. The Supply Chain Management Research Group at Ohio State found in a study, that nearly 95 percent of the supply chain managers are male, median age of managers 39 and about 20% have an additional professional qualification (eg. APICS). It’s also quite interesting to note that the average time the managers worked in the field of supply chain management is about 18 years combined with a high job rotation.

It is also highlighted how these SC-professionals gain the foundation of their knowledge.

In decreasing order of frequency: formal college, in-house training, seminar / workshop, ‘on the job’, and in-house training with an external trainer. Three major institutions are identified to support the professional education. First, so called professional bodies (like CSCMP), second, tertiary education at universities and lastly, publicly funded centres of excellence (like The MIT – Zaragoza International Logistics Program).

The authors argue that the current business transformation processes lead to a special need for experience and education for supply chain managers (this is taken from Christopher, 2004). For example:

The transformation from supplier-centric to customer-centric SCM, leads to the design of customer-driven supply chains, therefore a manager needs market understanding and customer insight.

In their own research they asked the provider-side (universities) what key changes they see to enhance the education. These are the main topics:

Specific logistics competencies are required for emerging markets.
Courses need to be more practical.
Multimodal nature of logistics and SCM needs to be highlighted more.
Need to differentiate between different learners.
Focus on processes and flows.
In-class exercises.
Best practice exists within certain companies.

The goal is to train the future supply chain manager to acquire the knowledge in the following areas:

General

Finance
IT
Management / Strategy

Logistics & Supply Chain Management

Operations
Focus on processes / flows
Legal, security and international trade
Multimodal logistics
Logistics in emerging markets

Competencies / Skills

Analytical
Interpersonal
Leadership
Change management
Project management

Conclusion

On the plus side the article summarizes the literature about the key qualifications, knowledge and skills which are necessary for supply chain managers to cope with the requirements of a changing business.

But on the other side the research part seems to be unilaterally focussing on the provider side, and there especially on the universities. Not only is one of the three randomly selected (?) public funded institutions located at the Hull University (home of the lead author), but also one of the research questions “What are the optimum approaches for career development?” was posed only to the provider side. I guess the result (Masters degree is listed first) does not come as a surprise.

Reference:

Mangan, J., & Christopher, M. (2005). Management development and the supply chain manager of the future The International Journal of Logistics Management, 16 (2), 178-191 DOI: 10.1108/09574090510634494

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