CH-15 Strategic Challenges and Change for Supply Chains – Supply Chain Management: A Logistics Perspective : Book Guide

CHAPTER 15 STRATEGIC CHALLENGES AND CHANGE FOR SUPPLY CHAINS LEARNING OBJECTIVES After reading this chapter, you should be able to do the following: • Understand current and future strategic challenges and opportunities for supply chains. • Identify several key principles for supply chain success that have retained their relevance over time. • Develop a fundamental understanding of supply chain analytics and how they can improve planning, decision-making, and execution in the supply chain. • Appreciate the richness of information and insight that can result from the application of supply chain analytics to big data. • Understand the critical success strategies for retailers operating in an omni-channel environment. • Appreciate the need for sustainability as it relates to organizations and their supply chains, and to develop effective priorities and approaches to achieve sustainability. • Assess the roles and importance of reverse flows in the supply chain, and to distinguish between a value stream and waste stream. • Become familiar with the concept and capabilities of 3-D printing. Also known as additive manufacturing, this emerging technology will have significant impacts on supply chain management. • Understand the changing roles of supply chain professionals and the process for developing related skills. • Have a broad and insightful perspective on the concept of supply chain management, and to understand how it can be a key element of success for organizations and their trading partners. CHAPTER OVERVIEW Introduction The primary purpose of this concluding chapter is to provide a capstone or integration of the content of this book. To help achieve this purpose, this chapter focuses on two primary objectives: • To examine seven key principles of supply chain management, ones that have been proven to have a lasting value. • To discuss several areas. Included among these areas are: (1) supply chain analytics and big data; (2) omni-channel; (3) sustainability; (4) 3-D manufacturing; and (5) talent. Principles of Supply Chain Management Principle 1: Segment Customers Based on Service Needs Essentially, this principle suggests a departure from traditional approaches to customer segmentation based on industry, product, or trade channel to an approach that segments customers based on logistics and supply chain needs. Principle 2: Customize the Logistics Network This principle stresses the need to develop supply chain approaches that are responsive to the needs of individual customer segments. Principle 3: Listen to Signals of Market Demand and Plan Accordingly In contrast to traditional forecasting approaches that sometimes result in multiple departments creating separate forecasts for the same products, the objective here is to see that demand planning is responsive to and aligned with market signals such as point-of-sale information. Principle 4: Differentiate Products Closer to the Customer When successfully implemented, this principle helps to improve customer service via fewer stockouts and also takes significant inventory carrying cost out of the supply chain. Principle 5: Source Strategically Although customers of all types should have fact-based knowledge of the cost of purchased products and services, over the long term, suppliers’ cost experiences will be passed along to customers in terms of higher prices. Principle 6: Develop a Supply Chainwide Technology Strategy The priority here is to replace inflexible, poorly integrated transactional systems with enterprise-wide systems. Principle 7: Adopt Channel-Spanning Performance Measures When individual companies in a supply chain ask the question: How are we doing? The response should be in the context of the overall supply chain. Anderson’s assessment is captured in the following points: 1. The seven principles basically survive the test of time. 2. We still have a long way to go on supply chain strategy implementation. 3. Technology and data will be the major game changer going forward. An Update on the SevenCo Principles of SCM In response to the comment that “the insights (from this article) remained remarkably fresh 10 years later,” lead author Dr. David L. Anderson wrote that he went back and reread the article to see if he agreed. His assessment is captured in the following points: • The seven principles basically survive the test of time. • Supply chain strategy implementation still has a long way to go. • Technology and data will be the major game changer going forward. Supply Chain Analytics and Big Data Central to an understanding of supply chain analytics is to recognize that one of the highest priorities at many organizations today is to take a giant leap from data to information, and then from information to understanding. The brief definitions below are intended to provide an initial awareness of what is meant by these three terms. • Data – unorganized facts that need to be processed • Information – data that has been gathered, processed, organized, and structured in a given context (e.g., average levels of inventory and/or levels of inventory by SKU) • Understanding – information that has been examined and studied in the context of specific business situations As might be expected, the availability of simple data and facts, coupled with complex data analysis, contributes greatly to the objectives of supply chain decision-making. Supply Chain Analytics Maturity Model Figure 15.2 helps to show the various stages and levels of sophistication and robustness that are associated with supply chain analytics. • Descriptive. This level incorporates available data to answer questions such as what, where, and when certain supply chain activities, processes, or events are happening? Essentially, descriptive analytics help to provide fundamental information about the functioning of an activity or process, and represent a capable starting point for more advanced and robust types of analytics. • Predictive. The level of inquiry takes a significant step forward in that the predictive stage focuses on questions such as what is likely to happen, what are the likely trends, and what are the results if certain events occur? Answering questions such as these involves formal analyses of available and relevant data, much of which may have been gathered initially for descriptive purposes. In addition, however, it is likely that additional data gathering and analysis may be needed to assure the usefulness and validity of predictions that may be made. • Prescriptive. As the questions shift to the topic of what should be done, this indicates a need for the utilization of prescriptive analytics. When facing the challenge of determining how to configure a large-scale supply chain network, for example, it is essential to use capable tools and processes that can prescribe what needs to be done. • Cognitive. The cognitive level typically introduces social context and meaning into the analytical processes, as well as very high-level mathematical and statistical capabilities. As such, sometimes the results from cognitive analytics include “blinding” insights that may otherwise be difficult to discern. Characteristically, cognitive approaches address problems that may be ambiguous and uncertain, and where data may change frequently and often is conflicting. Four requirements for cognitive systems include the following: • Adaptive – ability of systems to learn as information changes • Interactive – ease of use for those who are doing the analyses; likely will involve cloud capabilities • Iterative and stateful – identify additional data needs and relevant questions that can enhance the analysis • Contextual – involve a wide variety of inputs and sources of information Analytical Resources Figure 15.3 identifies example analytical resources that may be applied to various levels of sophistication to supply chain analytics. While the types and brands of software and technologies that can address supply chain issues are literally too numerous to mention, some of the more widely-used of these include IBM-SPSS, SAS, and Microsoft-Revolution Analytics (R). Additionally, IBM Watson Analytics is a cognitive system that can help to understand data, learn from it, and reason through it. IBM’s Watson has learning capabilities, and for example, can identify patterns in both traditional and unstructured data sets. What this means is that while most analytics technologies help to answer questions and solve problems that are pre-determined, cognitive capabilities can help to outthink the limits of what is already known. Big Data and the Supply Chain - A primary goal of big data is to help organizations better understand the information that resides within the data, and to focus attention on those factors that are most relevant to making well-informed supply chain decisions. So, the applications of analytics to big data can help to meet the objectives of descriptive, predictive, prescriptive, and cognitive types of analysis. Functional vs. Strategic Use of Big Data - Supply chain functional activities such as visibility, transportation management, and warehouse and distribution center management generate significant volumes of data. As a result, it is not surprising that shippers see great potential for improvement through the use of big data and appropriate systems and tools for data analysis. Supply Chain Examples. The examples below illustrate how the use of big data and capable analytics can help to improve supply chain practices. • FedEx uses active sensors in high-value merchandise that send out telemetry data, tracking the package’s traveling speed and conditions. Applying analytics to this data has the potential to largely reduce supply chain reaction times to avoid delays in shipments. This creates an ability to provide real-time information on the status of shipments and to reroute shipments as may be necessary from time to time. • FedEx also uses analytics to actively monitor social networks and video feeds, identifying customer service issues in a more proactive way. • Nike created a database with details on every link of its supply chain from sourcing to vendors across manufacturing and retail. Analytics helps identify the weak links within its supply chains – weak production, unfair labor practices and poor business decisions. • The Boston Consulting Group provides insight regarding the use of big data during the premerger planning for the combination of two large consumer-products companies. To better model the merger of the companies’ distribution networks, the use of geoanalytics involved the layering of geographic location data onto delivery data in a way that made it possible to visualize order density and identify pockets of overlap. Vehicle-routing software also enabled rapid scenario testing of dozens of route iterations and the development of individual routes for each truck. Results of this analysis uncovered as much as three hours of unused delivery capacity on typical routes after drivers had covered their assigned miles. Omni-Channel Today, the omni-channel concept can be defined as “anytime, anywhere, anyhow, and any device.” The idea here is that consumers have the options of where to buy, when to buy, and how to buy from a retailer. Whether a consumer visits a store to purchase goods or uses a smartphone to place an order on a web site, an omni-channel retailer will be able to accept, fulfill, and deliver the order based on the consumer’s preference. While technically not an omni-channel retailer, Amazon has had a great impact on the development of the omni-channel concept. Even though consumers cannot buy products at an Amazon store, they can place an order with Amazon for groceries (Amazon Fresh) or non-perishables and get delivery the same day (Amazon Flex) – even within a two-hour time window. This type of fulfillment and delivery network has pushed traditional retailers into using their store and distribution networks to offer the same type of service as Amazon. The ability to handle a consumer order from anywhere, at any time, from any device has a significant impact on the ability for a retailer to offer exceptional customer service. Strategies for Success This section will briefly discuss five strategies that retailers need to implement to gain a competitive advantage in omni-channel retailing. • One view of the customer. Regardless of whether it is a store or internet purchase, retailers need to realize that they have one consumer who has two channels from which to purchase an item. • Short-Term Forecasts. Having an accurate forecast of demand in an omni-channel environment is critical to retail success. • Seamless Order Entry and Order Management. Successful retailers understand that their environment is “one consumer/one order” regardless of whether it is a store or internet purchase. • One View of Inventory. For an omni-channel retailer, the critical issue is not where inventory is positioned within the network but whether it is available to fill an order, regardless of its origin. • Flexible Fulfillment Network. In an omni-channel environment, networks must be flexible – which has multiple dimensions. First, flexibility means allowing the customer to determine delivery options which could vary from several days to two hours to store pick-up, and they must be consistent. Second, flexibility means being able to “ramp up” and “ramp down” to meet seasonal patterns. Finally, flexibility means the ability to handle returns through either the fulfillment center network or store network, regardless of where the purchase occurred. • Changing Store Operations. Inventory visibility at the store level is critical to making delivery commitments. It also requires the ability to integrate point of sale data at the store to inventory availability in the back room and on the shelf to guarantee product availability. Store design must also adapt to the need for order picking and packing operations as well as for holding items for pick-up by the customer or by a delivery service. Store operations in today’s environment must replicate many of the operations traditionally performed at the fulfillment center while maintaining the focus of being a retail store with the proper product assortment and merchandising strategies to facilitate ease of shopping for the consumer. The Future of Omni-Channel What will the omni-channel retail industry look like in ten years? This is anybody’s guess, but it will transform based on how technology improvements will facilitate this development. Amazon’s drone network would revolutionize home delivery if the technology becomes commercially feasible. Adaptive, or “3-D” printing could allow consumers the convenience of “printing” merchandize at home. The technology is not yet sufficiently developed to allow this. Regardless of the technology influence on omni-channel retailing, the future will certainly continue the strategy of the past that brings products to the consumer (home delivery) rather than having the consumer coming to the products (store shopping). Successful omni-channel retailers need to focus on convenience, consistency of speed, assortment, and information to meet the increasing product and service requirements of the consumer. Sustainability The goal of sustainability is challenging and it is worth noting at this juncture that the best approach may be to consider sustainability as a journey that will take time and effort to improve. It is also worth pointing out that there has been much progress made over the course of the last several decades. There was a time when sustainable actions and practices were considered by some organizations to represent increased cost that would have to be absorbed with subsequent lower profit or passed off to customers with higher prices or some combinations of the two. Also, it was assumed by some to mean a loss of efficiency placing organizations at a competitive disadvantage, particularly on a global basis. Benefits and Challenges In the current economic environment, growing number organizations have conceded that there can be revenue opportunities to offset the costs, especially when sustainability practices are not viewed narrowly as simply recycling and disposal. One of the challenges facing organizations is that sustainability has many dimensions. At the most basic level, sustainability requires companies to consider and manage the impact that their supply chain has on both the natural and social environment in which they operate. The latter implies a commitment to social responsibility and may be overlooked since it is usually the most challenging aspect for organizations. The commitment to improve sustainability can follow many different paths including reduced packaging, alternate modes of transportation (rail versus truck), minimizing transport miles, maximizing shipment size, etc., all of which can also lead to increased profits through lower costs. Other sustainability practices such as distributing and using only fair trade products or insuring humane working conditions at supplier factories can encounter organizational resistance because of increased costs. As some individuals note, cost often drives behavior. However, when companies can get customer buy-in (collaboration), can gain a competitive advantage in the market place for such effort. However, it should be noted that skepticism still remains in some quarters as to the financial viability of such efforts. Social and Environmental Responsibility Another important area for sustainability is the recognition of climatic risk in supply chains. For example, emissions reduction is a goal for many organizations but the results are a “mixed bag”. Some blame regulatory bodies for lack of decisive action, and the scientific evidence is not always clear cut for directing efforts of organizations to make improvements. Organizational investment in these efforts brings negativity to the overall drive for sustainable practices. While there is growing evidence of success, there is still a lack of effort and even resistance in some organizations. One successful approach to overcome organizational resistance is to effectuate collaboration in the supply chain. The power of “partnerships” to establish a joint effort throughout the supply chain among suppliers, producers, customers, logistics service providers, etc. can help make positive changes for mutual benefit of all and the collective approach can often produce more innovation and provide pressure for increased cooperation. The opportunity that today’s consumers have for obtaining product information is also becoming an important driver of change and improvement through the social media. Consumers share evaluations and information among each other on a real time basis which is a powerful weapon for many changes including sustainability practices. The information and transparency into organizational practices is a dynamic that cannot be underestimated whether it is about sustainability or racism in organizations. Reducing Risk One important dimension of supply chain sustainability that cannot be overlooked is the impact that such efforts can have upon reducing risk. There is a strong feeling among some supply chain experts that the mitigation of risk is the best driver of sustainability initiatives. One of the biggest risks for efficient and effective supply chains is the climate change associated with the pollution of the environment. The growing number disasters associated with weather related events from draught and wildfires to hurricanes and floods have captured the attention of businesses, government agencies and the general public. “R’s” of Sustainability In this general discussion, mention should also be made of reverse logistics systems and closed-loop logistics or supply chain systems. Both reverse and closed-loop systems are important strategies that impact sustainability in a positive manner. At this point, consideration needs to be given to the so-called R’s of sustainability: reuse, remanufacturing, refurbishing, and recycling. Table 15.1 provides a brief description of each of the R’s. It is important to note that sustainability strategies are being designed today also from a business-related or economic perspective as opposed to a public relations approach, as was frequently done in the past. The global, competitive environment requires a broad-based collaborative effort among organizations in a supply chain along with governmental support. Sustainability is a complex issue that will continue to be challenging. The recycling of consumer and industrial waste has become very widespread, and materials are being reused in a variety of creative forms. Often recycling results in the creation of an entirely new product, for instance, automobile tires into door mats and flooring material. Reverse Flows The description of this supply chain indicated that there were four important flows to manage: materials, information, financials, and demand. Furthermore, the figure demonstrated that three of the flows could be two-directional. Materials typically flow “downstream” in a supply chain from raw materials sources to the ultimate consumer with value being added to the product along the way. Reverse flows can move back through the supply chain for a variety of reasons. Consequently, a number of terms including reverse logistics systems, product recovery systems, product return networks, enterprise returns management, and others have been used to indicate the growth in the volume and importance of returns and the need for their efficient and effective management. The forward flow in the supply chain typically has received the most attention since it is so important in terms of customer service, revenue, and cash flow. The reverse direction has often been regarded as a necessary evil or at best a cost center that needs continual scrutiny to control and reduce. Traditionally, reverse flows were not viewed as adding value for customers or revenue for the manufacturer or producer. In other words, product returns were viewed as a “waste stream,” not as a potential value stream. O Good information contributes to efficiency and effectiveness because it facilitates the flow through the supply chain and reduces uncertainty. Unfortunately, the power of information systems and technology has not received enough emphasis in return flows. Cash or value from returns also needs to be a focus for organizations if they are to receive all the benefits that can come from managing reverse flows. This requires more proactive management to obtain such benefits for companies. Another observation is that global supply chains present challenges and opportunities for reverse flows. Some European countries have been very proactive in passing so-called green laws, primarily for environmental reasons, which means that companies doing business in these countries must be cognizant of these regulations and policies. The green laws usually require reverse flows, for example returning packaging materials. Some underdeveloped countries are very lenient in these areas, which may raise ethical issues for companies doing business in these countries. The differences among countries and the complexity of global supply chains mandate a critical evaluation and analysis of the issues associated with global reverse flows. Some individuals consider reverse flows for logistics and supply chains as a relatively new phenomenon. In actuality, reverse flows have been a part of logistics and supply chains for many years. Transportation companies dealt with customers who would not accept damaged products, and they accepted liability for the value of the damaged products. To offset their lost revenue, the transportation companies would usually attempt to sell such products to salvage operators for eventual resale. It is estimated that returns can range from a low of about 3 percent to a staggering 50 percent in some sectors. AMR Research estimates that U.S. retailers lose 3 to 5 percent of their gross sales to returns and that this accounts for about 4.5 percent of the cost of logistics. In the consumer electronics industry, the average return rate is estimated at 8.5 percent and in the apparel industry at 19.4 percent. Some additional sector data on returns indicate the following: catalog retailing, 30 percent; durable goods (TVs, refrigerators, etc.), about 4 percent; book industry, 10–20 percent; and music and entertainment, 10–20 percent. At the retail level (where most returns originate), Internet returns are about double the counter sale returns. It seems safe to conclude that as Internet sales increase relative to traditional sales, the volume of returns will increase. Another reason for the increase is the customer service policies of some of the large retailers, which make the acceptance of returns ridiculously easy (e.g., “no questions asked,” “no receipts necessary,” “no time limits,” etc.). The problem is then shifted back to the product manufacturer, which has to accept the return and usually deduct the original price from the invoice. 3-D Printing Also referred to as “additive manufacturing” (i.e., the process of joining materials such as plastic, ceramics, or metal powders to make objects from 3-D model data, usually layer upon layer until a three dimensional product is created), 3-D printing has exceptional potential not only to facilitate processes and activities in the supply chain, but also to become a “game-changing” innovation in the supply chain. Thus, this represents a truly disruptive technology that can have vast strategic impacts on supply chain management. Initially used most widely in product prototyping, 3-D printing technology is increasingly being adopted for a number of finished products. The technology is being recognized for its numerous advantages: quick turnaround from design to production; cost-effective pro¬duction of small lots with special-purpose tooling; design flexibility for complex product structures; and ability to enable product customization. Hence, 3-D printing is a particularly advantageous alternative to conventional manufacturing technologies for products that are high in labor cost, increase their value with customization, require complex tooling for new products, and/or are produced in small quantities. An Inside Look at 3-D Printing In the near-term, participants at the Penn State Supply Chain Leaders Forum view 3-D printing as being advantageous for fit-to-scale prototypes, low-demand parts with long lead times, and inventory management (because digital inventories can be printed on-demand locally). They speculate that we will see wider adoption of 3-D printing as the associat¬ed technologies improve, machine and material costs decline, and companies better understand where those technologies fit into their supply chain processes. With advances in 3-D print¬ing technologies, more companies are actively exploring open-source collaboration in the physical-product world. In this environment, the digital design or blueprint files for a physical product can be shared within the growing number of “open-source community” companies and individuals. Prototypes can then be rapidly developed using 3-D printers, and any subsequent improvements made to the design can be redistributed. Illustrative Examples of 3-D Printing An example is GE Aviation that has switched from traditional manufacturing of fuel nozzles for certain jet engines to the 3-D printing of these parts. Given the expectation of GE Aviation that more than 45,000 of the same design will be needed each year, one might assume that more traditional manufacturing methods would be utilized. However, the 3-D printing approach was chosen since this technology allows fuel nozzles to be assembled from 20 separately cast parts to be fabricated in one piece. Expectations at GE were that the costs of manufacturing would be reduced by 75%. Supply chains facilitating the service parts industry are likely to be significantly impacted by the availability of 3-D printing. With efficiently-sized 3-D printing devices located in convenient locations, someone in need of a replacement part would need to download an electronic design from a commercial source and then print the part as desired. In the case of obsolete parts, they could be scanned in 3-D for use when and where they may be needed. Clearly, this type of capability would lead to significant changes to how we manage inventory. Looking into the future, and once the cost of 3-D printing has become more affordable, it is possible that some household products actually could be manufactured in the homes of consumers. Examples of such products might include plumbing supplies, brackets and fixtures for home improvement, and consumer items such as smartphone cases. This would have significant implications for the logistics industry, as the relevant flows of product would shift from the consumer items themselves to the 3-D printing technologies and the raw materials that are used in their manufacturing processes. 3-D Printing Strategic Impacts on Supply Chains and Logistics Although 3-D printing is in the early stages of development, it is clear that this emerging technology ultimately may have massive impacts on supply chain management. The list below identifies a number of key supply chain concepts, and provides some thoughts as to how they may be changed or enhanced through the use of 3-D printing capabilities. • Demand-Driven. Products may be printed when and where they are needed. This results in greater timeliness and responsiveness to demand. • Customization/Segmentation. Depending on cost and demand for products, some may be manufactured traditionally and some through use of 3-D printing. • Adaptability and Flexibility. Significant enhancement by simply modifying electronically-available details for 3-D printing. • Range of Product Types. Easier to print variations of products (e.g., size, color, etc.). • Inventory. Will change inventory management as we know it. Will significantly reduce the need to hold finished goods, parts, and raw materials inventories at strategic locations in the supply chain. • Transportation. Focus will shift to availability of materials used in 3-D printing processes, and then “last-mile” movement of 3-D printed products to customer or consumer locations. Will dramatically change the cost of and need for transportation as we know it. • Service and Replacement Parts. Many will be available via downloading a part design from an online 3-D printing library, then 3-D printing the part as may be needed • Globalization. Significant impacts on global sourcing, manufacturing, and distribution. Will significantly modify our thinking about off-shoring, near-shoring, etc. • Decentralized Supply Chains. 3-D printing closer to markets and customers, without excessive safety stock costs. • Small Batch Capabilities. Will significantly modify the way production economies of scale are relevant to manufacturing and supply chain decision-making. • Sustainability. Less waste and need for reverse logistics; lower carbon footprint. • Workflows, Value Chains and Processes. Overall, these will need to re-thought to take advantage of far-reaching capabilities of 3-D printing. Significant modifications to and streamlining of supply chain networks. • Total Landed Cost. With changes to traditional types of supply chain costs, procedures for and calculations of total landed cost will change dramatically. The Growing Need for SCM Talent Management Predictions regarding future developments in SCM tend to focus on technological advancement and process innovation. Additionally, organizations need the right people with the proper skills to staff supply chain leadership roles. These roles are expanding and will continue to do so as C-level executives recognize the value of strong, integrated SCM capabilities for driving business success. Though the outlook is bright for supply chain professionals, organizations face a future talent supply-demand gap. Numerous studies have highlighted the shortage of promotable SCM talent as a potential roadblock to success. Qualified candidates with the appropriate mix of supply chain skills, general management aptitude, and relevant industry knowledge are in short supply. Organizations need to adopt a long term talent management strategy that involves significant planning and a commitment to investment. Effective execution of talent acquisition, development, and advancement strategies will maximize the future capabilities of a company’s supply chain team, improve retention, and prepare high potential individuals for leadership roles. Acquiring new staff to supplement the internal talent pool is the crucial first step in building a high quality SCM team. Hiring properly skilled and culturally aligned talent not only takes care of current staffing needs, it also sets the stage for future retention and growth. These skills are not limited to supply chain expertise. Broader general management skills will also be essential as SCM becomes more ingrained in corporate strategy and the footprint of SCM responsibilities expands. Future supply chain leaders will need to be critical thinkers and problem solvers with abilities to see the big picture, develop integrative solutions, establish contingency plans, and communicate the vision. To find these broadly skilled supply chain professionals, organizations will need to deploy active recruiting techniques. Leading organizations will actively engage SCM candidates through highly effective personal contact methods. They will build recruiting relationships with leading universities, leverage employee referrals, and create online communities via LinkedIn and other sites to facilitate candidate interaction. Developing talent is the critical second step of building a high quality SCM team. Talented individuals must be quickly acclimated, continuously trained, and properly deployed to meet the supply chain requirements of the organization. Additionally, a proactive professional development program combined with challenging assignments will help reduce the risk of talent turnover. Hence, supply chain leaders will need to immerse future hires in the organization’s culture and provide current team members with opportunities to expand their capabilities. To support the growing need for supply chain talent, organizations will need to build stronger, more thorough development programs that include effective onboarding, ongoing training, and individual guidance. A formal mentoring program will help the transition of newly hired professionals through the learning curves of an unfamiliar role, work environment, and organizational policies. A strong culture of development will encourage active pursuit of skills improvement and professional growth. And, supply chain – human resources collaboration on the SCM talent pipeline will identify high-potential individuals and create customized roadmaps for their development. Fostering the advancement of top supply chain talent is the third team building step. The last thing an organization wants to do is invest heavily in talent only to have high turnover. A proactive combination of career guidance and challenging assignments will stretch the capabilities and foster the retention of supply chain professionals. This is essential for creating the bench strength and institutional supply chain knowledge that underpin future success. To avoid talent flight, organizations must provide compelling SCM advancement opportunities via logical career paths, retention strategies, and succession planning. Because relatively few organizations offer clear SCM career paths, there is an imminent need to help individuals plan and manage their advancement. Proactive retention strategies focused on role clarity, financial incentives, and performance feedback from senior executives to create a positive culture and contentment. And, adopting a succession planning framework will help organizations to systematically pinpoint high potential SCM talent and groom these individuals for future roles. Without question, an organization’s future success will depend upon its ability to sidestep the SCM talent shortage. The solution is to adopt a three-step talent management process that integrates acquisition, development, and advancement. Doing so will establish the broadly skilled talent pool that is ready to lead next generation supply chains. Closing Thoughts In closing, there are a number of high-level “takeaways” that the authors would like to highlight. In general, they all support the critical importance of supply chain management to organizations of all types. • Excellence in supply chain management can be useful pathway to managing an organization’s bottom line and top line … and hope to help differentiate the organization in the market place from its competitors. • To fulfill their responsibilities, people involved in the supply chain typically spend more time interacting with others in their organization than they interact with each other (i.e., meeting and exceeding supply chain objectives requires regular and effective coordination with other process areas on the supply and customer sides of the business. • Supply chains are impacted by a very wide variety of external and internal factors. The impact of current and future economic, social/political, and environmental trends tends to have a “magnifying” impact on the planning and functioning of supply chains. • The importance of technology to the future of supply chain management cannot be overstated. While there are many activities and processes in the supply chain that involve the movement of physical products with the use of physical assets, the effective use of technology to manage flows of information and be a critical characteristic of successful supply chains. • While supply chain management is commonly defined in terms of its mission, goals, and processes, in a much broader sense it actually represents an innovative and very robust way of looking at organizations and how they work with their suppliers and serve their customers. • The integrating principles of supply chain management also may be viewed as a refreshing context for the management and leadership of the overall organization and its business partners. • Although we commonly think of various organizations as competing with each other, none of these organizations can meet its goals and objectives without working effectively with its network of suppliers and customers. Thus, the context of supply chains competing with each other is not only an interesting idea, but in fact one that holds true every day in the competitive arena. • Among the key attributes necessary for long-term success, supply chains must have the ability to change and reinvent, sometimes on a regular basis. Ideally, and instead of being simply responsive to current and future trends, supply chain transformations should be in anticipation of future environments that will affect organizations and their supply chains. Summary • “The Seven Principles of Supply Chain Management, published in the Supply Chain Management Review is a timeless article that provides useful perspectives on key supply chain issues and priorities that will be relevant well into the future. • Supply chains generate a wealth of data that can be transformed into information and insight through the use of supply chain analytics. The application of these analytics to big data provide perspectives on supply chains that otherwise would be difficult to discern. • Traditional retailers that want to compete in the omni-channel environment must change and adopt new strategies to be successful. These strategies start with a new view of the customer and end with how order entry and order fulfillment/delivery are executed. • Sustainability has become an increasingly important objective for private-sector, for-profit organizations in the twenty-first century. Initially organizations focused upon sustainability because of political and public pressure and their recognition of the importance of their social responsibility. • Sustainability is a challenging and complex issue because of the diversity of views on the topic, but some supply chain professionals have found it useful to consider sustainability on a broad functional basis—inbound functions, production and operation functions, and outbound or distribution functions. • An analysis of the benefits of a reverse or return flows program is dependent upon the development of the true costs associated with such a program and comparing them to a realistic measure of the benefits. • The science of 3-D printing is quickly advancing, and the implications for supply chain management are very significant. Also known as additive manufacturing, this emerging technology will have lasting impacts on the design, configuration, and functioning of supply chains, and on the overall value propositions created by various supply chains. • The role of supply chain professionals has greatly expanded, creating a shortage of qualified talent. This challenge is expected to continue into the future for organizations that fail to manage their talent supply chain. • Organizations need to adopt a proactive SCM talent management process to acquire, develop, and retain key individuals for advancement into leadership roles. • Overall, this book has focused on the foundations, fundamentals, processes, challenges and future directions for supply chain management. Hopefully, this will provide a sound base for more in-depth study and examination of the principles of supply chain management. ANSWERS TO STUDY QUESTIONS 1. To what extent have the seven principles of supply chain management remained current? What are some of the major changes that have occurred since they were first developed? Anderson’s assessment is captured in the following points: In response to the comment that “the insights (from this article) remained remarkably fresh 10 years later,” lead author Dr. David L. Anderson wrote that he went back and reread the article to see if he agreed. His assessment is captured in the following points: 1. The seven principles basically survive the test of time. Although I might include some thoughts around global supply chain risks, add a section on insourcing/outsourcing strategies, update the case studies, and tighten up the procurement strategy discussion, I still believe companies cannot go wrong by adopting these principles as the basis of their supply chain strategies. 2. We still have a long way to go on supply chain strategy implementation. The fact that the principles are still relatively fresh implies that many companies have not done the best job implementing strategies that underlie the principles. 3. Technology and data will be the major game changer going forward. UPC, RFID, and GPS-related data were not around when we wrote the article. The growing availability of “real-time” supply chain data as well as the tools to enable us to use the data in planning and executing supply chains will be the key factor that separates the winners and losers in supply chain management over the coming decade. Now that we are nearly another 10 years past the original publication of this timeless article, it is clear that these seven principles continue to be highly relevant to the contemporary challenges related to managing effective supply chains. 2. Which of the seven principles of SCM do you feel will be most critical to the success of supply chains in the future? Evaluate the students work on its own merits 3. Provide an example supply chain issue or problem that you feel may be addressed by each of the key stages in the supply chain maturity model (i.e., descriptive; predictive; prescriptive; and cognitive). Evaluate the students work on its own merits 4. Using the internet, identify 2-3 traditional retailers that have adopted one or many of the five keys strategies necessary for success in an omni-channel environment. How did they implement this strategy and what were the results? Evaluate the students work on its own merits 5. Why is sustainability such a complex and challenging issue for organizations? How can they simplify these challenges from a supply chain perspective? The goal of sustainability is challenging and the best approach may be to consider sustainability as a journey that will take time and effort to improve. There was a time when sustainable actions and practices were considered by some organizations to represent increased cost that would have to be absorbed with subsequent lower profit or passed off to customers with higher prices or some combinations of the two. Also, it was assumed by some to mean a loss of efficiency placing organizations at a competitive disadvantage, particularly on a global basis. In the current economic environment, growing number organizations have conceded that there can be revenue opportunities to offset the costs, especially when sustainability practices are not viewed narrowly as simply recycling and disposal. For example, some organizations have recognized that their consumer packaging practices were not conducive to their objective of achieving sustainability, and made changes which were environmentally friendly and improved efficiency in the supply chain. A well-known example was a change made with the mutual consent of P&G and Wal-Mart to reduce the size of the plastic containers used in the sale of liquid detergents by reducing the water content of the product and making it more concentrated. The consumer had to be convinced that the smaller size bottle would give them the equivalent number of washer loads. Once that was accomplished, the resulting cost reductions in packaging and transportation and the increased efficiency in utilizing space in warehouses and store shelves were notable. It represented a win-win in terms of costs and sustainability. The reduction in unnecessary packaging has become a growing practice among a variety of retail organizations and manufacturers to the benefit of overall environmental sustainability. There are other examples of changes in supply chain practices such as vehicle routing, increased load size, vendor purchasing practices, etc., which have lowered cost and reduced environmental pollution also. One of the challenges facing organizations is that sustainability has many dimensions. At the most basic level, sustainability requires companies to consider and manage the impact that their supply chain has on both the natural and social environment in which they operate. The latter implies a commitment to social responsibility and may be overlooked since it is usually the most challenging aspect for organizations. For example, the “sweat shop” labor used by suppliers in underdeveloped countries may be difficult to ascertain. Also, the argument is sometime made by indigenous owners and managers, that overall it is beneficial to the employees even if it could be classified as a sweatshop because they have no alternative employment opportunities. The “best-in-class” companies do attempt to manage and control both the natural and social and environmental issues on an integrated basis, but it is challenging especially for human rights issues and product life impacts. It is here that collaborative efforts can play a major role as long as everyone is consistent and in agreement as to what the best practices entail. This is particularly true if the approach, suggested above, to sustainability recognizes that it is a journey with a path of continuous effort. The improvement aspect requires the right balance of people, process and technology. With increase in complexity in supply chains, there is a growing need for improved technology to drive innovation, cost reduction and customer service. The commitment to improve sustainability can follow many different paths including reduced packaging, alternate modes of transportation (rail versus truck), minimizing transport miles, maximizing shipment size, etc., all of which can also lead to increased profits through lower costs. Other sustainability practices such as distributing and using only fair trade products or insuring humane working conditions at supplier factories can encounter organizational resistance because of increased costs. As some individuals note, cost often drives behavior. However, when companies can get customer buy-in (collaboration), can gain a competitive advantage in the market place for such effort. However, it should be noted that skepticism still remains in some quarters as to the financial viability of such efforts. One successful approach to overcome organizational resistance is to effectuate collaboration in the supply chain. The power of “partnerships” to establish a joint effort throughout the supply chain among suppliers, producers, customers, logistics service providers, etc. can help make positive changes for mutual benefit of all and the collective approach can often produce more innovation and provide pressure for increased cooperation. The opportunity that today’s consumers have for obtaining product information is also becoming an important driver of change and improvement through the social media. Consumers share evaluations and information among each other on a real time basis which is a powerful weapon for many changes including sustainability practices. The information and transparency into organizational practices is a dynamic that cannot be underestimated whether it is about sustainability or racism in organizations. 6. Distinguish between a value stream and a waste stream for reverse flows. Give examples of each. Materials typically flow “downstream” in a supply chain from raw materials sources to the ultimate consumer with value being added to the product along the way. This is value stream. Reverse flows can move back through the supply chain for a variety of reasons. The forward flow in the supply chain typically has received the most attention since it is so important in terms of customer service, revenue, and cash flow. The reverse direction has often been regarded as a necessary evil or at best a cost center that needs continual scrutiny to control and reduce. Traditionally, reverse flows were not viewed as adding value for customers or revenue for the manufacturer or producer. In other words, product returns were viewed as a “waste stream,” not as a potential value stream. Evaluate the student’s examples on its own merits 7. What special challenges and opportunities are presented for reverse flows by globalization? What do you think is the biggest challenge and the greatest opportunity? Why? Global supply chains present challenges and opportunities for reverse flows. Some European countries have been very proactive in passing so-called green laws, primarily for environmental reasons, which means that companies doing business in these countries must be cognizant of these regulations and policies. The green laws usually require reverse flows, for example returning packaging materials. Some underdeveloped countries are very lenient in these areas, which may raise ethical issues for companies doing business in these countries. The differences among countries and the complexity of global supply chains mandate a critical evaluation and analysis of the issues associated with global reverse flows. Evaluate the student’s biggest challenge and greatest opportunity on its own merits 8. Aside from the 3-D printing impacts on supply chains that are discussed in this chapter, what do you think are 2-3 additional example impacts that could have been mentioned? Evaluate the student’s examples on its own merits 9. How is the role of supply chain professionals evolving? What skills will managers need in the future to succeed in this profession? Predictions regarding future developments in SCM tend to focus on technological advancement and process innovation. Additionally, organizations need the right people with the proper skills to staff supply chain leadership roles. These roles are expanding and will continue to do so as C-level executives recognize the value of strong, integrated SCM capabilities for driving business success. These executives are beginning to elevate supply chain leaders to strategic roles and are investing in SCM capabilities to create competitive advantage. Though the outlook is bright for supply chain professionals, organizations face a future talent supply-demand gap. Numerous studies have highlighted the shortage of promotable SCM talent as a potential roadblock to success. Qualified candidates with the appropriate mix of supply chain skills, general management aptitude, and relevant industry knowledge are in short supply. This problem will continue into the future unless organizations take steps to actively manage and enhance their talent supply chain. 10. What strategies and steps can organizations pursue to combat the SCM talent shortage? Supply chain talent management is a multi-faceted, dynamic, and challenging activity. There are no quick fixes or easy solutions. Organizations need to adopt a long term talent management strategy that involves significant planning and a commitment to investment. Effective execution of talent acquisition, development, and advancement strategies will maximize the future capabilities of a company’s supply chain team, improve retention, and prepare high potential individuals for leadership roles. Acquiring new staff to supplement the internal talent pool is the crucial first step in building a high quality SCM team. Hiring properly skilled and culturally aligned talent not only takes care of current staffing needs, it also sets the stage for future retention and growth. These skills are not limited to supply chain expertise. Broader general management skills will also be essential as SCM becomes more ingrained in corporate strategy and the footprint of SCM responsibilities expands. Future supply chain leaders will need to be critical thinkers and problem solvers with abilities to see the big picture, develop integrative solutions, establish contingency plans, and communicate the vision. To find these broadly skilled supply chain professionals, organizations will need to deploy active recruiting techniques. Simply posting opportunities online and waiting for top candidates to emerge is ineffective in an increasingly competitive recruiting environment. Instead, leading organizations will actively engage SCM candidates through highly effective personal contact methods. They will build recruiting relationships with leading universities, leverage employee referrals, and create online communities via LinkedIn and other sites to facilitate candidate interaction. Developing talent is the critical second step of building a high quality SCM team. Talented individuals must be quickly acclimated, continuously trained, and properly deployed to meet the supply chain requirements of the organization. Additionally, a proactive professional development program combined with challenging assignments will help reduce the risk of talent turnover. Hence, supply chain leaders will need to immerse future hires in the organization’s culture and provide current team members with opportunities to expand their capabilities. To support the growing need for supply chain talent, organizations will need to build stronger, more thorough development programs that include effective onboarding, ongoing training, and individual guidance. A formal mentoring program will help the transition of newly hired professionals through the learning curves of an unfamiliar role, work environment, and organizational policies. A strong culture of development will encourage active pursuit of skills improvement and professional growth. And, supply chain – human resources collaboration on the SCM talent pipeline will identify high-potential individuals and create customized roadmaps for their development. Fostering the advancement of top supply chain talent is the third team building step. The last thing an organization wants to do is invest heavily in talent only to have high turnover. A proactive combination of career guidance and challenging assignments will stretch the capabilities and foster the retention of supply chain professionals. This is essential for creating the bench strength and institutional supply chain knowledge that underpin future success. To avoid talent flight, organizations must provide compelling SCM advancement opportunities via logical career paths, retention strategies, and succession planning. Because relatively few organizations offer clear SCM career paths, there is an imminent need to help individuals plan and manage their advancement. Proactive retention strategies focused on role clarity, financial incentives, and performance feedback from senior executives to create a positive culture and contentment. And, adopting a succession planning framework will help organizations to systematically pinpoint high potential SCM talent and groom these individuals for future roles. Without question, an organization’s future success will depend upon its ability to sidestep the SCM talent shortage. The solution is to adopt a three-step talent management process that integrates acquisition, development, and advancement. Doing so will establish the broadly skilled talent pool that is ready to lead next generation supply chains. Case Studies CHAPTER CASE 15.1 Snoopze’s P. O. PLUS Your Role…. Snappze’s has requested that you analyze the three major options discussed above (education and training for upper mobility; P.O. related service (stamps anyone?): on-line ordering with options for pick- up and delivery) and provide a critique and recommendation (s) for future action. 1. Where do we go from here? This case, much like the SAB case presented in Chapter 1, describes a successful company but at the retail end of the supply chain. Similar to SAB, Snappze’s has adjusted to their changing economic and social environment by making strategic changes or modifications in their business model. Their success speaks for itself, but they realize that they cannot “rest on their laurels” and must continue to change or they will lose their market position and profitability. Students should be able to have a lively discussion or present ant interesting analysis since the case is timely and there is much information on the internet for them to “mine”. The first issue appears to be a “no brainer”, viz., providing educational opportunities to develop a group of potential managers. However, they will need to put in place a more organized plan to identified potential candidates and make decisions as to whether the training will be ”on-the-job” and/or more formal or organized . A combination of the two would probably most appropriate. They need to plan for more formal training when individuals are identified to move beyond first level supervision, e.g., shift supervisor to store manager. The two nephews can probably lay out these plans and maybe bring in some outside talent to lead the training. They should also consider a tuition remission program to foster college level education for selected individuals. Again the two nephews can assist with this effort, and there are many examples to draw from. The other two options are potentially more “strategic game changers” for their business model similar to some of their previous changes. The first one, i.e., the package p/u and d/o , is an interesting possibility but would work best in urban areas. However, even smaller communities, e.g., college towns or areas with apartment complexes are having problems with theft. This would be viable in select locations but the space required could be an issue. That said, it does have the potential of bringing in customer after working hours who could be attracted to making additional purchases of needed items which may lead also to some merchandise rationalization. They also have to determine a pricing model for these services. They have the opportunity to experiment with the locations that they deem, after appropriate analysis, to have the most potential. It would not be an especially high risk departure for them. The final recommendation may have the most potential, an omni-channel approach for customers. They are already more than half-way there with many of their locations. Omni-channel has become a “buzz word” of sorts in today’s environment for retailers. In basic terms, it means maximizing the shopping convenience of customers by maximizing their options to buy anytime, anywhere, at their convenience. For example, come into the store and pick out an item that is on the shelf or in the freezer and pay; or come in the store and order and order an item and pay when it is ready; or call ahead and special order from a menu on their smart phone and come to the store for pickup and payment ; or order from the smart phone and have it delivered to their location. The last option they do not have in place because maintaining delivery services is challenges for some business. However, today, in many communities ( large and small)they have UBER type services available for multiple retailers where the cutomer pays for delivery and the items ordered on their smart phone. This could be a “game changer” for them at selected locations. Many opportunities for finding information and some realistic options to review and analyze. CHAPTER CASE 15.2 Peerless Products, Inc. 1. Assume you are the CEO of Peerless Products and you are aware of your company’s lack of end-to-end supply chain capability. What are some of the high-level adverse impacts on your business that may occur? Foremost, cycle times will become longer and more variable. It is also likely that stockouts will increase at least temporarily, transportation costs will increase overall, the optimal structure of the distribution network will change, and logistics expenditures will change somewhat. As a result of these changes, customer satisfaction may slip and/or overall profitability may suffer. 2. What steps would you recommend be taken to help avoid the types of adverse impacts identified above? It would be helpful for Peerless to take a number of steps, including: • Fitting supply chain technology to the new supply chain environment. If greater visibility can be attained, it will help ease the pains of transition. • Building collaborative relationships between local Chinese suppliers and the plant will aid in increasing forecast accuracy, and smooth downstream lumps in demand. • Postponing final production will slightly increase lead times, but may lead to more accurate fulfillment rates. • Given the labor cost advantages in China, it may or may not be desirable to outsource ancillary services (labeling, packaging, etc.) to other Chinese firms near the new plant. Peerless’ VP of manufacturing should assess this possibility. 3. As CEO, what would be your expectations of the company’s vice president of supply chain with respect to the potential problems at hand? How would you compare and contrast expectations of the VP of supply chain with those of the VP of manufacturing? The VPs of supply chain and manufacturing should work together to assess technological needs, initiate collaborative relationships, etc. However, as CEO, the students should expect the VP of supply chain to be more attuned to the issues surrounding strategic distribution planning and execution, whereas the VP of manufacturing should focus on maximizing productivity and minimizing costs of production. Each should consult with the other as needs arise for interdepartmental integration in order to optimally fulfill Peerless’ corporate mission. Dr. David L. Anderson, managing director, Supply Chain Ventures, LLC, http://www.supplychainventure.com. Ferrucci, D. et al. (2010) Building Watson: an overview of the DeepQA Project. Association for the Advancement of Artificial Intelligence, Fall 2010, 59–79. www.ibm.com/software/analytics/spss/ www.sas.com www.revolutionanalytics.com/ http://www.ibm.com/cognitive/outthink/ C. John Langley Jr., Ph.D. and Capgemini Consulting, 2014 18th Annual Third Party Logistics Study, Capgemini Consulting, 2013, page 18. The original information appeared at www.slashdot.org , October, 2012. C. John Langley Jr., Ph.D. and Capgemini Consulting, 2014 18th Annual Third Party Logistics Study, Capgemini Consulting, 2013, page 18. The original information appeared at www.smartplanet.org, November, 2012 Richard D’Aveni, “The 3-D Printing Revolution,” Harvard Business Review, May, 2015. Solution Manual for Supply Chain Management: A Logistics Perspective John J. Coyle, John C. Langley, Robert A. Novack, Brian J. Gibson 9781305859975