Supply Chain Matters does not normally cite or comment on the huge plethora of opinion research studies concerning the discipline and state of global supply chain management. By our view, there are too many outlets, beyond experienced analyst anchored firms, producing so called research vs. opinion of the day among a limited set of respondents.
We were recently able to obtain a copy of The Chief Supply Chain Officer Report 2013, Pulse of the Profession, conducted and compiled by SCM World, and we were impressed with the research approach as well as the key findings. The full report is available for no-cost download by registered members of SCM World and is well worth a reading. An Executive Summary can be obtained by no-cost registration.
This is fourth year of this particular study and the continuity of the study and its findings adds particular meaning. This year’s research survey was conducted during late July and August of this year and was noted as including over 750 completed responses, which is a substantial study considering today’s practices in these types of surveys. It is current and timely.
The goal of this commentary is not to re-produce the findings but rather to add some of our impressions to the findings. SCM World, the authors of the report have done a great job of articulating individual findings.
Our impressions are the following:
More and more, senior supply chain executives now have a seat at the senior executive table but that comes with the reality check of added accountabilities. According to the summarized findings, supply chain leaders are apparently caught in the middle of rising customer demands and expectations and the global growth ambitions of their firm’s management teams. The conundrum of objectives directed at continued reductions in costs while helping to grow the business are being taken on. There is rather interesting detail that points to how these pressures now manifest themselves in stated supply chain process and management objectives, which should capture the attention of peer supply chain executives.
By our Supply Chain Matters lens, this is not an area that is addressed by summarizing multiple years of industry performance and metrics, but rather leadership for weighting and interpreting key business objectives to required supply chain outcomes.
The report further provides compelling evidence on the impact that omnichannel online fulfillment is having on retail supply chains as well as key suppliers to retail. The report concludes: “the omnichannel model is swamping traditional store-based operations.”
We were fascinated with some of the findings related to changing perspectives and landscapes surrounding the firm’s supply chain related social and environmental responsibilities (SER). Responses point to more and more focus towards leading corporate social responsibility efforts, while consumer willingness to pay for socially responsible products remains low. SER efforts continue to be driven by cost and efficiency goals, but the recent visibility to health and safety issues has increased the ranking of health and safety objectives across the global supply chain
Concerning the area of supply chain risk management, the authors point to responses indicating easing concerns in this area. Executives actually quantified multi-million impacts of recent risk events in their responses and the report authors conclude that this easing stems from supply chain teams investing in risk sensing and management capabilities these past few years. Survey findings rank the top ten risk mitigation practices, and by our view, tend to have a procurement focused bias toward continuity of supply. Report authors point to more executive mindshare now focused on other cost and price risks which we believe, further reinforces a procurement lens, and perhaps the need for broader cross-functional perspectives related to other forms of key risk.
In these times, no supply executive survey neglects to reinforce the challenges related to overall talent management and the annual occurrence of this particular survey provides a historic perspective to some progress being made in this area. The findings point to specific successes in knowledge workforce development but efforts to provide an overall compelling career management perspective in supply chain remains challenging. Again, there is interesting data related to different perspectives, a broader skills umbrella, and advocating for broader cross functional and cross business training initiatives.
Overall, we view this research as insightful and thought-provoking, and recommend that industry supply chain executives take the time to review and absorb the findings.
This week marks the one year anniversary of the tragic grounding of the mega cruise ship Costa Concordia resulting in the loss of 32 lives and the evacuation of 4200 passengers and crew. At the time of the accident, Supply Chain Matters penned a commentary on the spillover effects of this accident on the broader shipping industry, where big mega-ships are the current operating principle. The world’s largest ocean container vessel, the 16,000 TEU capacity Marco Polo, operated by French line CMA CGM entered into service in mid-December, and we might add, a marvel of technology.
Shortly after the Concordia accident, there were estimates that an incredibly challenging salvage operation would take at least a year to complete and cost in excess of $500 million. There were also implications related to current cruise ship safety, crew training and ship evacuation procedures.
A video report from NBC News hosted by Yahoo Business provides images of the ship still sitting in its original spot as salvage cranes and floating platforms surround it. The person in charge of the righting and salvaging describes the incredible complexity of re-floating this vessel, which is not likely to meet its original salvage milestone. Meanwhile the sunken ship continues to sit within one of the most sensitive ecological areas on the Italian coast.
Incredibly, the captain of the vessel indicates that he has no regrets, and still believes he was misunderstood in escaping the vessel prior to all passengers. He places the blame on lower-ranking officers. This captain is yet to stand trial on the charges of multiple manslaughters, wrecking and abandoning ship, even as victim’s relatives attend a memorial ceremony one year later. One wonders if the Italian government and cruise industry is really invested and having Captain Schettino brought to justice.
The open question is whether the industry has learned from this tragic accident? With the advent of super technological-laden mega-ships, have ship crew training, safety, and evacuation procedures been vastly improved or are we all turning a blind eye on what occurred with the Costa Concordia. Does the existence of these large mega-ships, designed for ultimate operating efficiency and capacity come with appropriate safety and navigational measures to avoid another major accident with loss of life or considerable monetary and ecological damage.
These were the questions we posed one year ago.
What have we learned?
A posting this morning from Levi Sumagaysay on SiliconValley.com indicates that electronic components and Android smartphone manufacturer Samsung has dispatched a team of inspectors to investigate a claim that one of its contract manufacturing assembly suppliers is utilizing child labor.
The posting notes that New York based Child Labor Watch, the same group that exposed poor working conditions at contract manufacturer Foxconn, are behind the latest allegations. The CLW organization accuses HEG Electronics (Huizhou) Co. Ltd. of utilizing seven children, all under the age of 16, of working in a single department. CLW orchestrated a group of its investigators to work within the HEG Electronics factory during the months of June and July as the basis of the allegation. The CLW report further indicates that while the precise number of total underage workers is unknown, this organization suspects that 50 to 100 children may be working at this facility.
According to the CLW investigative report, HEG Electronics is an important supplier for Samsung, assembling products such as mobile phones, DVD’s, stereo equipment and MP3 players. The report indicates that the HEG web site identifies Motorola and LG as other prominent customers. It further identifies social responsibility auditing firm Intertek, the labor audit services provider to Samsung, of overlooking violations because some auditors have accepted bribes. According to the SiliconValley.com and a separate Bloomberg published report, a Samsung spokesman indicated that two inspections of HEG’s working conditions were conducted this year with no “irregularities.”
In his posting, Sumagaysay points out that while Apple has been in the global spotlight of suspect labor practices among its major suppliers, the timing of this latest allegation comes in the same week as the Apple-Samsung patent infringement trail.
This is a development that is certain to gain continued visibility by Silicon Valley social and business media but beyond that, has continued implications for consumer electronics manufacturers and their supply chains.
Through the gracious efforts of the MIT Center for Transportation and Logistics (CTL), Supply Chain Matters had the opportunity to attend Crossroads 2012: Supply Chains in Transition held on June 28 at the MIT campus. The conference included insightful speakers who brought forward some new and interesting perspectives. The highly informative sessions addressed five key challenges that the MIT CTL organization feels will impact supply chains in the next five years:
- Megacities and Sustainability
- Managing Resource-Constrained Supply Chains
- Mining Digital Data for Actionable Strategies
- Talent Management that Supports Global Growth
- Emerging Supply Chain Risks
Our condensed commentary highlights some of the key takeaways we garnered from the various speakers.
Dr. Edgar Blanco of MIT addressed compelling trends in megacity growth in the coming years. Megacity was defined as a city population of at least 10 million persons. The current growth in megacities primarily involves the emerging economies, and Dr. Blanco provided some compelling data that indicate why logistics and distribution strategies directed at supporting megacity retail and product fulfillment needs will need to be revisited in the light of current trends. Dr. Blanco’s argument was that megacity complexity grows faster than current policy and logistics operations supporting these cities. MIT CTL also announced the launch of a Megacities Logistics Lab that would involve a team of academic collaborators and researchers from Latin America, Europe, Asia and other counties to participate in this effort. The most interesting discussion points from this session were the concentration of a cash economy in megacities along with the broad use of mobile phones.
The resource-constrained supply chains session addressed the availability of inbound raw materials and whether certain supply chains would become resource constrained in key materials such as rare earth and other scarce metals, water and other resources. The key takeaways were how important enterprise-wide sustainability initiatives are so critical to addressing longer-term supply needs and how important it has become to have a complete mapping and perspective of the entire global-wide supply and value-chain. One rather thought-provoking question brought forward to the three speakers in this tract was: Where Should Our Supply Chains End? The consensus answer was that the supply chain ends at the final disposal of the product.
The two speakers addressing the mining of digital data for actionable strategies were terrific and brought important differentiation in addressing actionable strategies for mining data needed in supply chain decision-making. The consensus was that the term “big data supply chains” is all too overwhelming. Dr. Jeanne Ross, Director of MIT Sloan School’s Center for Information Systems Research, noted that “small data/little analytics” is a far more sustainable approach in data mining, but is, in-turn, incredibly hard for businesses. (Technology vendors take note!). Dr. Ross outlined three management imperatives for helping teams to work smarter:
- Development of an information backbone for building good data and for provisioning data to support key decision-making.
- Management of consistent set of business rules.
- Re-design of structures, roles and accountability to support a smarter supply chain organization
Tony Grichnik, Intelligent Systems Leader at Caterpillar Logistics, challenged the audience to determine whether supply chain organizations were just collecting a mass amount of data vs. collecting the right data. He then shared a Caterpillar Logistics methodology that provides teams with a set of key questions to answer in the efforts to determine the long-term effectiveness for collecting data, information and required knowledge. In the Q&A session, both speakers reminded the audience as to why big data warehouse initiatives failed in the 80’s along with the importance of changing people’s habits to test, interact, and be comfortable with the most knowledgeable data required to do their jobs.
The session addressing emerging supply chain risks was an outstanding interactive panel discussion consisting of three highly knowledgeable risk related experts moderated by Jim Rice, Deputy Director at MIT CTL. The panelists were:
- Gary Lynch, Managing Director, Global Supply Chain Risk, Marsh Inc.
- John Wass, CEO, WaveMark
- Heinke von Seggern, Head Procurement Sustainability and Risk Management, F. Hoffman-LaRoche Ltd.
The discussion was insightful and the takeaways were many. They included the need to continually look for structural change impacting the supply chain. Supply chain leaders need to more often step out of day-to-day firefighting and think strategic, including challenging business assumptions when they present far higher risks. Also noted was the important learning that has occurred across industries from the recent major disruptions that occurred in 2011 and 2012. Panelists also reinforced the need for relentless mapping of supply chains, constantly analyzing threats and practicing scenario-based planning and management techniques. Gary Lynch brought forward an observation that Supply Chain Matters outlined in our 2012 Predictions, namely that business risk interruption insurance is becoming far more expensive as a result of past expensive disruptive events.
The 2012 Crossroads conference was timely and informative. Readers should consider attending this conference in the future.
Supply Chain Matters readers are probably aware that this author pens periodic guest blog commentaries on the Infosys Supply Chain Management Blog. The Infosys Asset Management consulting team has noticed that while discussing needs in asset management, clients are expressing new interest in coupling sustainability with asset management needs. Today we initiated a two part commentary to explore sustainable operations and their relationship with asset management pain points. In my initial guest commentary, I respond to a series of questions that were posed related to current sustainability challenges within asset intensive industries. The questions explore my views of how asset intensive industries are starting to shift focus more toward sustainable operations and green assets, opportunities to tie these needs with asset management approaches and current concepts in smart buildings and IT data centers. The notion comes down to thinking a bit differently, that smarter asset management, real-time monitoring, coupled with sustainability and product objectives opens up new opportunities to compete for business and revenue growth.
In the second part of this series, Praveen Agrawal, Enterprise Asset Management Consulting and System Integration lead from Infosys will further list the areas in which asset intensive organizations are going to focus more on sustainability based on the current research which Praveen and his team are undertaking for clients.
Our readers, especially those within asset intensive industries should gain benefit and insights from this series of commentaries and please share your own thoughts as well.
Disclosure: Infosys is one of other named sponsors of the Supply Chain Matters Blog and strives to promote thought leadership and insights for supply chain and asset management.
As we transition into the final month of 2011, we are revisiting the Supply Chain Matters 2011 Annual Predictions for Global Supply Chains which were outlined a year ago. Our annual process is to first re-visit past projections made for the current year, in this case 2011, and declare some projections for the upcoming 2012 year, which will come in a later series of postings before the end of the year. In this Part Four and final posting, we will revisit predictions eight through ten. Our earlier scorecards can be accessed by clicking on the following links:
Prediction Eight: Two industry sectors, B2C and healthcare, will be especially effected by significant supply chain process impacts in 2011.
Both the B2C retail and pharmaceutical and healthcare industries were significantly impacted by supply chain related process impacts in 2011, making our prediction right on the money.
In the brick-and-mortar and E-Commerce sectors, a more sophisticated consumer has absolutely altered the retail buying landscape. Throughout 2011, consumers are exercising their ability to significantly influence product selection choices, perform real-time price comparisons, and easily place orders via the Internet and smartphones. According to comScore Inc., U.S. online e-Commerce spending is expected to grow to $162 billion in 2011, up from $142 billion in 2010, an increase of 14 percent. This motivated brick-and-mortar, as well as online retailers, to significantly enhance their online shopping, multi-channel commerce and operational capabilities throughout 2011. An article featured in the Wall Street Journal in mid-November (paid subscription or metered free view) noted that the hottest thing on retailers Christmas lists this year are finding experienced directors of e-commerce. Those that are highly experienced with solid track records are commanding total compensation packages upwards of $1 million.
For the online channel, Amazon continues to set the bar for services and price aggressiveness, causing retailers in many sectors to heavily invest in augmenting online capabilities in order to protect market share. Two of the most visible aspects of online impacts were the announcement by Wal-Mart that its CEO of global E-Commerce would retire in July after disappointing results in the online channel. The retailer who continues to have aggressive expansion plans related to online presence promises to announce a replacement in early 2012. Retailer Best Buy has experienced five consecutive quarters of declining sales growth as consumers visit that retailer’s brick-and-mortar stores to touch and view products but often order goods online from the most price advantaged sites.
Another highly visible impact was that of Target. The retailer had previously outsourced its online site to Amazon, but made a decision to roll out its own internally sourced online site Target.com in August, only to experience a five hour breakdown in September when premiering a highly marketed promotion of Missoni clothing. The after-effects of this incident have motivated that retailer to also seek a new director of online activity.
The massive shift to more online retail capabilities and services is forecasted to have noticeable impacts to retailer margins this year, particularly in the upcoming 2011 holiday buying season. Most retailers are offering free shipping, and many have considerably expanded the availability of products available for online purchase. The implications to retailer inventory management and added costs will be interesting to observe when the final year-end results are tallied.
Pharmaceutical and Healthcare
The second significantly impacted industry Supply Chain Matters predicted for 2011 was that of pharmaceutical and healthcare related value-chains. The reason was what we viewed as the cascading effects of the significant changes in strategic business models causing too much leaning toward reduction in supply chain costs, healthcare reform initiatives emanating from multiple countries and desires to grow sales in emerging markets. We feared all of these forces would cause noticeable supply chain impacts. What we did not anticipate was the severity, which turned out to be a complete breakdown in certain industry segments.
In July, we posted a Supply Chain Matters commentary, Why are Pharmaceutical and Drug Supply Chains Failing?, noting financial media headlines that a vast majority of U.S. hospitals were facing severe shortages of life-saving chemotherapy and intravenous drugs used in critical care. We followed up with a commentary in August noting that the ongoing complexities of pharmaceutical global supply chains have become greater than these companies abilities to control them. Critical shortages of life-saving drugs spilled over to areas of pet care, and in September, we noted that 2011 was tracking to be a year with the largest number of severe, life-saving drug shortages causing hospitals and healthcare providers to resort to gray channels to secure supplies. While industry concerns were primarily focused on increased regulation and cost managing costs, value-chains in certain segments have broken down in 2011. Causation points to generic producers and contract manufacturing sources, but that may be symptomatic of other problems. Suffice it to state that this industry remains in supply chain related crisis and that the situation will continue into 2012.
Prediction Nine: The landscape for the global outsourcing of components and finished goods production will shift again in 2011.
The essence of this 2011 prediction was that two fundamental business forces, ongoing fierce competitiveness forces directed at lowest product cost and continued needs for access to booming emerging markets, would compel manufacturers and retailers to pay much more attention to outsourcing strategies and to analyzing all the pertinent factors motivating these strategies. We anticipated further shifts in component and finished goods product sourcing, particularly in low margin or highly sensitive IP product areas.
This prediction also turned out to be generally correct but the most compelling motivation for re-examining sourcing in 2011 relates to vulnerabilities to natural disaster when product production is too concentrated in a single geographic region.
Significant inflationary pressures brought about by explosive increases in labor costs, along with raw material and commodity costs, forced many manufacturers to revisit their sourcing strategies for China and other emerging economies. The building clouds of currency risk ebbed and subsided in various points in 2011, only to surface again late in the year with the ongoing Eurozone sovereign debt crisis and threats to the Euro. Manufacturers of lower costs and lower margin products continued to shift sourcing strategies away from China in favor of other countries.
Of more lasting impact, one that will continue in 2012 was the reminders that the northern Japan earthquake and severe monsoon floods in Thailand brought in 2011. The motivations for low cost sourcing may have exposed significant vulnerabilities to strategic capacity and risk. Having upwards of 30 percent of global hard disk drive manufacturing sourced within one country, along with the hundreds of bill-of-material related component related suppliers is cause for concern.
In the area of market access, intellectual property protection and increased concerns among senior executives regarding increased barriers for doing continued business within China have cast a less aggressive perspective for sourcing within China, and those companies that are compelled to stay the course, are constantly revising or modifying sourcing and value-chain strategies.
We believe that the landscape for global outsourcing of components and finished goods shifted in 2011, and will spillover again into 2012, perhaps at a much more aggressive rate.
Prediction Ten: Supply chain related green and sustainability programs will continue in 2011 and beyond, but at a slower pace.
Entering 2011, supply chain wide green and sustainability initiatives had been primarily directed at achieving reductions in resource use as well as in saving costs. Saving energy, water consumption or packaging resources all related to the bottom line and at the same time, provided customers and consumers a positive persona of a green and sustainable brand and company.
While a positive sustainability profile often makes good business sense, we had predicted a slowdown in green and sustainability program momentum during 2011. Our prediction was predicated on the continued effects of global recession and that consumer buying decisions would not in the end, favor a green or sustainable product over a lower-cost product.
That did not turn out to be the fact since consumers continued believe that companies can provide green and sustainable products at competitive prices. Rather than a slower pace, many companies, especially those with a B2C presence, increased their investments in green initiatives. The efforts and initiatives of multi-industry supply chain dominants such as Wal-Mart, Procter & Gamble, Kraft Foods, Nike and others no doubt kept momentum moving and expectations high. In one example, Wal-Mart is deploying its Supplier Energy Efficiency Program (SEEP) to improve the energy efficiency of its suppliers by passing along learning the global retailer has gained from its own internal initiatives.
The standards for green and sustainable supply chain are high, and we are pleased that our 2011 prediction in this area turned out to be more positive.
This concludes our complete series of scorecard updates related to the Supply Chain Matters 2011 Predictions for Global Supply Chains published at the beginning of this year.
Of the original ten predictions, by our count, five were on the money, three came about partially, and two were a miss. We rate our 2011 predictions good, but readers are certainly welcomed to chime in and share their observations of global supply chain events in 2011.
Predictions aside, 2011 was a significantly challenging year for global supply chain teams and it does not get any easier in 2012. In December, we will declare and publish our 2012 Predictions for global supply chains so keep your browser favorites pointed toward Supply Chain Matters.
©2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters, all rights reserved.